Many of the top investors in the world, including Warren Buffett, have said again and again that it is important to diversify your portfolio. This holds especially true in times of economic downswings.

As we see the dollar fall further every day, we have to think about how to protect ourselves from what some call an inevitable collapse of the dollar. Now, we could recommend buying other currencies or foreign stocks, but that won’t do it. Every other currency has been falling, too.

After thinking long and hard about it, there’s only one way to go…precious metals. But here at Penny Sleuth, we’re not going to tell you to invest in gold and silver bullion (although it’s not a bad idea). There is a much more lucrative way to make serious money, while protecting yourself from the dollar debacle — junior mining companies.

Quite often, Wall Street dismisses juniors for being “too risky” and “unstable investments.” But we’re used to that; they always say that about small-caps. However, to be fair to the suits in Manhattan, many juniors fizzle out without bringing investors the big money they promise. But, we do have one junior silver miner that’s about to graduate to major’s status, in a matter of months. More on that in a minute…

We first have to discuss why silver is the best investment.

For thousands of years, silver has been the currency of choice everywhere from Ancient Greece to the Spanish colonies in South America.

But times are different today. Money no longer has silver in it (excluding certain Mexican peso denominations). It’s common to think of gold as an investment, but not so with silver. Here’s why: There are hundreds of different purposes for silver outside of investment. The majority of all silver produced makes up everything from silverware and jewelry to photography and other industrial applications. Take a look at the breakdown below:

As you can see, investments only account for a small amount of demand. Gold is another story. Governments, investment houses, and even private investors hoard gold.

However, this ideology changes during recessions and market downturns. Most investors flee the stock market by holding a large portion of cash, and when the dollar also falls, they flee to precious metals, including not just gold, but silver as well. You can see this happening here.

This trend is just beginning. As James Turk, founder of GoldMoney, was quoted in The 5 Min. Forecast last week, “Silver needs to break above $14.85 to confirm that both precious metals have resumed their major uptrend.” It was only a matter of hours after he said that for silver to break its previous 26-year high of $14.85. Over the next 24 hours after breaking this mark, silver shot up over $16 an ounce.

While it has corrected a bit since then, this just marks the start to an enormous rally in the precious metals market. Experts are falling all over themselves to be the one who predicts how high it will go. But the truth is, no one knows. The important thing is that it will go much higher from here.

We’ll just keep our eyes’ peeled here at Sleuth central for the best way to play it…

Sincerely,
Jim Nelson
November 13, 2007

P.S.: Don’t worry. I didn’t forget. That junior miner is still kind of a secret. You see, in the next few weeks, fellow Sleuth editor Greg Guenthner will be recommending it to his Penny Stock Fortunes readers. I hate to lead you on like that, but it’s such a big opportunity, I had to let you know about it.

Jim Nelson

Jim Nelson began his investing career during the tech boom at age 14 – with purchases of Starbucks and AOL. Early inspiration came from an old Tweedy Brown whitepaper: “What Works in the Market.” He graduated with a degree in Political Science from Pittsburgh University, Nelson focuses on income investing, including dividends, covered calls, and fixed-income. Additionally, he covers MLPs, ADRs, utilities, consumer staples and tobacco. Nelson is the managing editor of Lifetime Income Report.

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