3 Ways to Play the Coming Silver Shortage
3 Ways to Play the Coming Silver Shortage
Across the country, coin dealers are scrambling to fill orders amid massive silver shortages… And as the severity of this shortage deepens, silver investors stand to profit considerably
Silver dealers all over the country are running out of the “white” metal – fast. Buyers are waiting months for delivery of coins, bars, and junk silver.
In fact, silver supplies all over the world are at their lowest levels in 200 years – and dropping. Right now there are less than 200 million ounces of above-ground silver reserves.
According to Van Simmons, president of David Hall Rare Coins:
“There is an acute shortage of physical silver available at this time. The U.S. Mint is out of the Silver Eagles…[and] silver bars in the 100 ounce size are unavailable at this time. In 30 years I have never seen that.”
Compare that to 1950 when the U.S. alone had 2 billion ounces of silver reserves.
So where has all the silver gone? Year after year, its been used up to fill the gap between supply and demand. In 2007 alone, silver demand was at 843.7 million ounces while silver mines only pulled 670.6 million ounces out of the ground.
Meanwhile, Industrial demand for silver, especially in electronics, has risen at a rate of 7% a year – primarily in growing markets like China and India, countries which have recently depleted their silver supplies and are now relying completely on imported silver.
And yet, despite an increasing industrial demand for silver and worldwide supply shortages, prices have remained relatively low at just over $12 an ounce. That’s still 76% below its historic high.
Basic economics teaches us that increased demand, mixed with a dwindling supply, leads to one result – higher prices.
This imbalance won’t last forever. And whether you buy silver bullion directly, use an ETF, or invest in a silver mining stock, this precious metal could give your portfolio a nice boost in 2009…
The Right Time to Buy
In addition to basic supply and demand, there are several more reasons silver will make a vital addition to your portfolio in the current market:
- Silver thrives amidst world chaos. When silver exploded to $49.45 per ounce in 1980, oil prices were skyrocketing, U.S. racked up an extraordinary debt, and Washington D.C. was clouded with political uncertainty. Sound familiar?
- Commodities tend to gain value during times of rising inflation and a declining dollar. And both are happening now. So by investing in silver, you’re doubling up on its benefits.
- Finally, silver is an excellent hedge against a poor-performing stock market. A diversified portfolio can easily weather financial storms, and even prosper in a bear market. Owning silver is one great way to diversify.
Considering the current market conditions, dedicating a small percentage of your portfolio to silver makes sense. So here’s 3 ways to do it.
1) Buy It Yourself
Of course the most obvious way to own silver is to buy the physical metal itself. Purchasing and holding silver coins or bars is certainly the safest way to guarantee your investment.
And if you can get your hands on it, this might be the way to go. Unfortunately, this is easier said than done. Coin dealers across the U.S. are reluctant to sell the silver they have (an indication that the price will be rising soon) because they don’t know when they will receive any new shipments.
There are a few options, however, if you’re in the market for coins and bars. Austin Coin Collectors has a nice selection of new and vintage silver dollars made of 99.9% silver, while David Hall Rare Coins can also help you get your hands on some “hard” currency.
But their supplies may not last long.
In 1964, the U.S. produced over 500 million ounces of silver coins while this year the U.S. will mint a paltry 20 million ounces of coins. Even if the Treasury wanted to, it would be unable to put more silver into the market. Silver mines just aren’t producing enough of it…mostly because the price is so low.
Fortunately, even if you can’t purchase silver bullion directly, you can benefit from this perpetual silver shortage in several other ways.
2) Let Someone Else Do the Work
If you don’t feel like dealing with the hassle of storing your investment, there are several alternative paths to invest in silver without buying a safe.
1. One way is to purchase silver bullion via the Perth Mint Certificates Program (PMCP). In doing so, your silver is stored with a government guarantee at the Perth Mint warehouse in Western Australia. And you’ll get a certificate that shows how much of the metal is being held for you. Your profits here are directly correlated to silver prices, but the mint does charge storage and insurance fees.
2. Recently, another silver opportunity emerged, in the form of an Exchange-Traded Fund (ETF). The iShares Silver Trust (AMEX: SLV) is backed by more than 130 million ounces of silver, totaling $1.8 billion in assets. It’s important to note, however, that its Net Asset Value (NAV) factors in the trust’s expenses and liabilities. So while the price of the ETF is significantly correlated to the price of silver, it’s not a pure play on the metal.
3. Another excellent choice is through an EverBank Metals Select Account, in which you can buy silver (and gold) at just 1% above the market price. In “unallocated” accounts, your purchased metal is pooled with that of other investors like you, which eliminates storage and maintenance costs. “Allocated” accounts allow you to purchase your own silver and gold – bars and coins – with a custodial fee. (We should point out that the publisher of Investment U has a marketing relationship with EverBank)
3) Go to the Source
A final option, although somewhat more risky, is to invest in silver mining companies.
Industrial demand has been outstripping mining supply for the past 15 years, driving above-ground supply to historically low levels. And many experts project that silver reserves will shrink to a critically low level by 2010.
This leaves a lot of room for growth in the mining industry and a few silver mining companies are positioned well to meet this coming supply gap:
- Silver Wheaton (AMEX: SLW) – as the largest public silver mining company, Silver Wheaton should benefit greatly from an increase in the value of silver. 100% of its revenues come from silver production.
- Sterling Mining (Nasdaq: SRLM) – With 25,000 acres in the “Silver Valley” of Idaho and 62,500 acres in the Zacatecas Silver District of Mexico, Sterling Mining has the ability to meet the growing demand for primary silver mining.
Whatever path you take, now is the time to buy silver. No matter which way you look at it, current supplies of silver aren’t going to last much longer.
Owning silver not only will hedge your portfolio against inflation and a weak U.S. dollar, its demand-driven surge will add some profitable icing to the cake.
Investment U Research Team