Commentary
Silver’s Big Week and The Road Ahead
November 5, 2010 by prospectingjournal · Leave a Comment
COMMENTARY – ProspectingJournal.com – November 5, 2010 – Not since prior to 1980, have we seen a stage set so perfectly for a surge in silver prices. Sure our attention may be drawn towards the price of gold flirting with the $1400 mark. I get it that you’re more intrigued by this fascinating rare earth minerals story. But, silver hit a 30-year high for the second day in a row and somehow it’s not grabbing the headlines the way gold, rare earth or even potash is these days. The signs that are showing the silver price tipping point are presenting themselves.
Today’s bump in the silver price came from an increase in demand coming from India, as its citizens both within and outside of the country prepare for a decadent Diwali festival, that according to Hindu mythology is best accompanied by decorative precious metals. But there are plenty of other factors that are leading to the world demand exceeding new mine supply, which it has for some time now. The other shoe has got to drop.
So, if you’re bullish about silver, the question then comes down to how one goes about reacting to their gut instinct about where silver is going. In comparison to gold, silver is actually affordable to purchase as a physical commodity. For the price of an XBOX 360, one can purchase a 10 oz bar of silver to hold onto for a rainy day. That same 10 oz bar in gold would nearly net you a 2011 VW Jetta. While many advisors will tell you to put at least 10% of your savings into physical metals, others will try to urge you to bump that amount up to 30%. That’s not easy for all of us to do, if we don’t have Jetta funds kicking around to buy something with some weight to it. The sooner savers wise up to this, the more you’ll see dashing for silver over gold.
Holding physical silver adds the benefit to the more anxious of us out there who may or may not have fears of economic or natural disasters. For this group of silver bugs, the security of having at their disposal a commodity that isn’t susceptible to hyper-inflation is reassuring, while for the more antsy, it’s also more secure than a piece of paper that shows that they own silver somewhere else. Though a major breakdown in the fibre of society is a little too far gone for this author, the threat of hyperinflation is always on the horizon and needs to be paid attention. With the announcement by Federal Reserve Chairman Ben Bernanke regarding “quantitative easing” (flooding the money supply to the rest of us), the projections for QE2 are already setting the rest of the world off.
But aside from heading to a bullion exchange and carrying home silver in a bag, there are other options around. For the rest of the crowd that finds owning a piece of paper showing their holdings to be just as secure as needed, there’s the Central Fund of Canada Limited [CEF.A – TSX] which is the ETF focussed on silver and allowing investors to get a piece of the silver pie without relying on individual mining companies.
Though only 30% of the world’s silver supply comes from pure play silver companies, up to 57% of the silver gap the market desires is filled by production gained as byproduct from base-metal mining operations. But to rely on those base-metal producers to provide a large gain from the imminent silver surge would be less than ideal. Canada has more than enough pure play silver companies to choose from to yield the benefit of silver’s 30-year record highs.
One of those pure play silver companies with large identified deposits are United Mining Group [UMG – TSX] which just announced the acquisition of a 265% increase of its acreage in Idaho’s Silver Valley at its Crescent Mine that sits between two former giant producers at Bunker Hill Mine and the Sunshine Mine. With a full service mining integration at its disposal, UMG has drawn interest from silver bugs who know the area and it’s potential, as they’re aware of the company’s claim over the Silver Valley being the second largest silver district in the world.
An alternative to pure play silver mining, is the concept of silver streaming. One such player with upward movement has been Silver Wheaton Corp. [SLW – TSX] which has seen its price steadily increase since from $18.74 to over $32 now. The company purports its diversified holdings in low political risk zones by purchasing up-front the byproduct silver from the rest of the base metal producers who aren’t designed to hold silver in the long run. The company bets on silver’s price in the future, and reaps the rewards from the work of other companies’ mines.
Going forward, silver is still an affordable commodity with an upside that gold doesn’t currently have, due to its already high cost. Silver closed out this week at $26.75, and the predictions to its potential are scattered out there on the web. Keep in consideration where the metal has been in the past. The nominal high price of the metal was $49.45 an ounce. Adjusted for inflation, we’re talking a value of nearly $250 per ounce. That’s a lot of ceiling space for silver to gain. What method you want to ride the upswing of the price of silver, is up to you.
by G. Joel Chury
ProspectingJournal.com
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DISCLOSURE: No fee has been paid for the production and distribution of this article and as such should be viewed in the context of a commentary. The author does not own any shares of the companies referred to within the article.
