Grab Silver with Both Hands and Hang On

The dynamics of the silver market over the next decade are incredible. Both industrial demand and investment demand will by themselves significantly exceed new supply.

I encourage you to watch David Morgan’s Lecture at the Sound Money Conference from January, 2011 to gain the valuable background knowledge to understand the silver market.

After watching the video, you will have heard David talk a few times about investor Eric Sprott and the silver ETF that his firm created. Both it and the investment funds set up by EuroPacific Capital are legitimate holders of all the silver their funds claim. David hints at or speculates that others like SLV do not have the silver they claim to have, instead holding promissory notes for them.

He also spoke briefly about how two Texans and a few Arabs were alone responsible for driving up the price of silver in the late 70’s to $50/ounce. He also demonstrates how the above ground available supply of silver at that time was four times greater than it is today. In a very simplistic assumption, silver could extend to $200/ounce if all else were the same as it was during its historic rise. But things are not the same. The market conditions that caused the Hunt brothers to buy up the silver are immeasurably worse today than they were back then.

While I won’t rehash everything David spoke about, I will provide you with my own long term investment plan that incorporates all the economic warnings and takes advantage of the opportunities that exist in silver. I wrote about part of this strategy earlier in an article entitled Time to Get Your 10-Year Mortgage?. Since that time, rates have moved up marginally but it is very prudent to get your borrowing locked in at these historically lower than average rates and to do so for as long as possible. This 10 year mortgage allows me to go long in my investments without having to worry about the short term fluctuations and instead focus on the fundamentals that David Morgan spoke about for the silver market.

To invest in silver, you’ll want both physical metal – stay away from numismatics, proof sets, and anything else that has some imagined value other than the silver content – as well as some non-physical as in Sprott’s silver ETF (PSLV) and if you are willing to engage in some risk, leverage up your investments with silver mining stocks. I call Sprott’s PSLV a non-physical silver because his fund holds the silver and you don’t.

The best pure silver stock out there, in my opinion, is Silver Wheaton as it only holds silver royalties and is known as a silver streaming stock. I don’t own it yet though I did own its predecessor Wheaton River a few years ago. I need to correct this glaring omission soon!

After that, my risk tolerance is pretty high and I turn to near producing juniors. As mentioned in a previous article, I am buying into Canadian Zinc, owners of the very silver mine that the Hunt Brothers were about the exploit before their empire crashed down.

The way I see it, David Morgan among others has been doing his homework in this area far better than any typical Wall Streeter (I’ve done mine as well first buying into silver at $7.17/ounce but the best is yet to come). I thoroughly trust his fundamental research. While there can be a speculative swing to the downside, it can’t last and over time we will see this demand pressure or lack of supply cause a movement towards an equilibrium at a much, much, higher price. Your 10 year or longer mortgage will buy you all the time you need.