Here’s everything you need to know to profit from the best metal ETF on the market.

Forget gold and platinum -– and even exotics like palladium -– the only precious metal that you need to own right now is silver. That may come as some surprise given the rally that gold has had this year, and given the analyst sentiment that has pushed the SPDR Gold Trust ETF (NYSE: GLD) to the world’s sixth-largest holder of gold bullion -– ahead of Switzerland and China.

But from a valuation standpoint, there’s no question that silver is the best metal to buy right now.

Making a value case for a commodity –- like gold, silver, or oil –- isn’t quite as simple as it is with a stock. That’s because while stocks have easily defined assets, the value of a commodity is simply whatever people are willing to pay for it. It all comes down to scarcity, or how much of a given commodity is out there.

In the case of precious metals like gold or silver, the metal is worth something because there isn’t a lot of it out there. Likewise, nonrenewable energy sources like oil are valuable because it’s in limited supply.

Traditionally, investors have looked at the relationship between gold and silver’s prices to determine whether one of the metals presented a good value play. At present, the gold-to-silver price ratio sits at approximately 59:1, which while high recently is nothing compared to its peak of 98:1 back in 1991.

But the fact of the matter is that the gold-to-silver price ratio is a worthless measure of the two metals’ value. To get a more meaningful indicator, let’s take a look at each metal’s “market capitalization” -– the value of all of “above ground” gold or silver multiplied by its price.

The results are startling…

You see, unlike gold, which has limited industrial uses, silver is used in a number of manufacturing processes. Some of these processes, known as non-recoverable industrial consumption (NRIC), result in the destruction of the metal and lower the amount of above ground silver. According to silver analyst Theodore Butler, in the last six decades NRIC has resulted in more silver being consumed than mined – from 10 billion ounces above ground in 1950 to just 1 billion today.

Compare that to gold, which has seen its above ground supply increase 150% to 5 billion ounces during that period.

As recently as 1975, the value of the world’s gold was 23 times higher than silver’s. Today, with depletion taken into account, gold is currently priced 250 times higher than silver. That’s a shocking difference.

And it’s one that suggests silver is grossly undervalued as an investment right now.

The Best of the Silver ETFs

The best way to play silver right now is clearly exchange-traded funds (ETFs).

While buying bullion direct is a good option for silver investors, the premium you’ll pay suppliers — often in excess of 5% — and the costs and risks associated with storage make it a poor choice for the vast majority of investors.

Investing in silver companies also adds a lot of risk over ETF plays. That’s because while precious metals are a point of refuge for investors when stocks are flailing, companies that mine the metals aren’t immune to the market’s overall trend –- they might do “better” than the rest of the market, but in a bear run that has most equities down double digits, “less worse performance” is little consolation for losses.

Not only do ETFs offer pure commodity exposure that’s nearly free of market irrationality, the best funds physically hold the silver bullion that your shares represent.

A vault filled with silver bars is a big draw for investors who are nervous about a fund failing to meet its investment objectives.

Though silver’s ETF offerings aren’t as varied as gold’s right now, there are several funds worth looking at right now. The biggest of the silver funds is the iShares Silver Trust ETF (NYSE: SLV), which has a market cap of $4.97 billion, and is one of the largest owners of silver bullion in the world. Other smaller funds include the PowerShares DB Silver Fund ETF (NYSE: DBS) and newly formed ETFS Silver Trust (NYSE: SIVR).

But in truth, the only silver ETF worth trading right now is the stalwart SLV. That’s because the other two funds lack the liquidity, cost-effectiveness, and options that SLV offers. And right now, SLV is on the verge of a technical breakout that could equal double-digit gains in days…

Taking a look at the chart above, the first thing that becomes clear is the uptrend that this fund has been on for the last year. And year-to-date, SLV has been constrained within a tight trading channel, which it’s currently right at the top of.

While nearing the top of a channel would normally signal a bounce back down, in this case, with SLV currently at a 52-week high and little risk of profit taking, the potential for a breakout above the trading channel is very real. If shares break through the top of the channel at the $17.70 mark, the breakout is underway and it’s time to consider grabbing onto shares.

Supercharging Your Silver Play

As usual, options are the best way to supercharge this silver play. With a move imminent, a shorter-term out of the money call option on SLV packs the highest profit potential. That could mean as much as triple-digit gains by the end of the month…

That said, if your risk tolerance is lower, the fundamental potential of silver easily justifies going with a more conservative option trade for this fund. You can take a look at all of SLV’s available option at Yahoo Finance.

Cheers,
Jonas Elmerraji

October 9, 2009

This Precious Metals ETF Could be Gold’s “Silver Bullet” was originally featured in the Penny Sleuth.

Silver is the most flexible metal on earth. We’re not talking about its malleability. We’re talking about how it is used.

Let’s take the point of view of those expecting a quick, painless recovery. In that case, silver is a great investment. It has many industrial uses other precious metals don’t. As the global economy kicks back into gear, we’ll see more demand from electronics manufacturers, battery makers and solar cell producers — all of which use silver in their products.

There are thousands of uses for silver in industry. It is used in water purification, medical machinery and, of course, jewelry. All of these industries will begin to pump out products again, which will put a strain on our limited aboveground silver reserves.

Now take a look at the world through the eyes of those thinking we are going to see a second collapse. The best place to store wealth is in precious metals. Of course, gold is the most common place to store cash, but silver is no slouch.

From 2006 until now, the physical holdings of silver funds have jumped 11-fold. That’s because more people than ever are interested in holding silver — or at least a fund that holds silver.

Silver is both a way to safely store your wealth and to spend it. Over the past several centuries, silver has been used as currency. In fact, our own U.S. dollar was once backed by silver. For those expecting the worst, silver is a must-own. These ETF holdings don’t even take into account how many people are stocking up on personal physical holdings.

There’s no shortage of demand. Everything is in place for another massive run-up. Gold already broke the $1,000 per ounce threshold last month. And it busted through its 2006 highs this week. Even so, silver is still lagging around $16.50.

David Morgan from Silver-Investor.com notes that when gold breaks through $1,000 and stays there for a length of time, silver will shoot up. He even went as far as to say silver will break through last year’s $21 high and hit $25 per ounce sometime in 2010.

Are we suggesting you buy silver? Well, yes. But we have a much better way for you to make money off this rise…

Buying shares of a major primary silver miner like Silver Wheaton (NYSE: SLW) would do the trick. It’ll certainly leverage its massive reserves and production against silver’s rise and return larger profits to shareholders than simply buying silver will. But even these gains will be miniscule compared with what you could see with small-caps.

We have an opportunity to get option-sized gains on silver’s rally without the downside or expiration hassles of actually buying options. By buying shares in a junior silver miner, like Hecla Mining (NYSE: HL) or Mag Silver (AMEX: MVG), we can take advantage of huge price swings without worrying about it expiring worthless, as options often do.

In just the last week, Hecla is up 15%, and Mag is up another 5%. As I write, these stocks are continually pushing into new 2009 highs ever day. When the silver boom gets traction in the market, expect small players like these to rocket as a result.

Sincerely,
Jim Nelson

October 7, 2009

Finding Option-Sized Gains from $25 Silver was originally featured in the Penny Sleuth.

In the last year, my Resource Trader Alert readers have already had the chance to book 143%, 148%, even 200% gains thanks to the commodities market. And in the current economic climate, as commodity prices start to heat up once again, the profit potential is amazing.

Here are the resource plays that I see rocketing right now…

Gold and Silver are leading the markets higher with the decline in the U.S. Dollar.  The greenback is at its lowest levels in since September 2008.  Gold is solidly above $1000 an ounce and looks positioned to easily make new all time highs on a course to $1200, from my projections.

Silver has made an impressive rally as well – one that I see continuing into the upper teens.

Recently I’ve been concerned about the lack of recent strength in Crude compared to new highs in stocks and metals.  Last week, that disconnect was repaired with a 5% move in prices putting oil solidly above $70 a barrel again. And it looks like oil hasn’t stopped its ascent either…

More Fuel for Higher Market Prices

The Organization of the Petroleum Exporting Countries (OPEC) did a good job of pushing oil prices up this summer. While OPEC managed to boost oil prices in the last six months, at current levels black gold is still a far cry from where it was a year ago – and where it could be again soon. This from Bloomberg:

“OPEC’s success in more than doubling oil prices since a five-year low in December will probably persuade ministers to maintain production quotas after this week’s meeting.

“Reducing shipments beyond record cutbacks last year would endanger the global economic recovery, the Organization of Petroleum Exporting Countries’ president said last week. Oil rose to $75 a barrel on Aug. 25, the price Saudi Arabian King Abdullah says is fair for consumers and producers.”

A major flaw in the governments’ unfair obsession with speculators is the failure to acknowledge the role of OPEC in energy prices.  They are a cartel!  Traders can buy and sell but only OPEC colludes to determine price levels.  Until hybrid cars, solar and geothermal technology, and algae fuel replace black gold we can fight the battle for financial gains.

We’ll continue to do just that.

It ALL comes back to commodities,
Alan Knuckman

September 14, 2009

What You Need to Know About the Future of Silver, Gold and Oil was originally featured in the Penny Sleuth.

That’s why the greatest inflation fighter in the world is under stress. Of course, we’re talking about gold. Gold is– and always has been– the safest place to put your cash. It has been traded as currency, stockpiled to backup paper money (think Fort Knox), and hedge spend-happy governments. Today, its hedging attribute is important.

Over the past few months, it’s become more and more difficult to buy physical gold. Even if you do locate it, what you actually pay is quite a bit more than its spot price.

In many cases, these buyers were willing to spend up to 25% more for gold than its value. That’s like your broker taking a quarter for every $1 share you buy.

So, if gold is too expensive, where can investors turn? Well, there’s always gold’s little brother…

Silver is not commonly thought of as an inflationary hedging tool. That is, until times get tough. And I don’t think you can find too many times tougher than right now.

Silver is often referred to as “the poor man’s gold”. We call it opportunity. You see, during the 1978-1980 precious metals rally, silver showed up late. Almost all of the large gains in silver came in the last few months.

We see the same events unfolding this time around. As we pointed out in the past, gold has always traded for about 16 times as much as silver, until the past few decades. Currently, the ratio sits around 71. When this number falls, silver booms.

Macroeconomics and ratios aside, there is one final reason we expect an enormous silver rally…

About 3 out of every 5 ounces of silver come from base metal mines. Roughly 28% of all silver comes from copper mines and another 32% comes from lead/zinc mines. Both of these sources are decreasing — and in some cases, completely shutting down — production due to the overall commodity market.

Only 10% of all silver comes from gold mines, which leaves just 30% of the total market to pure silver plays like Coeur d’Alene Mines Corp., Hecla Mining, and Pan American Silver. These serious cuts in production, gives us pure silver investors the inside track to cornering the silver market.

We are seeing a perfect storm brewing in the silver market. If you get in now, you might just beat the rush…

Sincerely,
Jim Nelson

March 17, 2009

How You Can Win with Silver was originally featured in the Penny Sleuth.