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3 More Reasons to Love Silver

Friday, February 11, 2011
3 More Reasons to Love Silver
by Sean Brodrick

I'm seeing increasing evidence that silver is lining up for a major move higher. What's more, I think it is cheap for a number of reasons. Here are three more things to keep in mind:

Reason #1: Silver Outperforms Longer-Term.

You may not want to judge a market by the TOO-long term because as the saying goes, "in the long term, we're all dead." But let's reflect on what happened since precious metals bottomed in October 2008. I'm adding the S&P 500 to the following chart to show comparative performance.

You can see that the SPDR Gold Trust (GLD), which tracks the performance of gold bullion, is up more than 86% since precious metals bottomed, but other precious metals funds are doing much better.

GLD is up more than 86% since October 2008

The Market Vectors Gold Miners (GDX) has rallied 175% at the same time. And both the Gold Double Long (DGP) and iShares Silver Trust (SLV) are up more than 200%. So, basically silver is performing twice as well as gold.

As for the S&P 500? Sorry, but that's up only 36% since October 2008. To be sure, the S&P 500 didn't hit bottom until March 2009, and it's up more than 90% since it scraped the barnacles off and headed higher.

This tells us it took longer for the S&P 500 to find a bottom and, even then, it still only manages to match gold's gains from its bottom.

So which would you rather hold? Between the three, I'd rather hold the gain of more than 200% — I'd rather hold silver.

Reason #2: Silver is Outperforming in the Shorter Term.

January was a tough month for precious metals, as the entire complex slid lower and analysts on the boob tube started talking about gold heading to $1,200 ... or lower ... in a hurry. But then the metals bottomed and headed higher again.

This gives us a great opportunity not only to see which precious metals funds got hammered the most in the correction, but also which ones are really enjoying the rebound. Take a look:

In January's pullback, DGP and SIL took the biggest haircuts ...

You can see that the DGP (double gold) took the hardest hit — not surprising because it's a leveraged fund. The GDX and SLV suffered about the same — off a little more than 13% from their peaks in the depths of the correction. That's more than double the 6.2% correction in gold. But now that things have turned around, who's leading the way higher? Silver!

Reason #3: China, China, China!

China used to be the world's biggest silver exporter. Now it's a net importer, and its silver imports are soaring.

China's silver imports have increased fourfold from 2009 to 2010, according to data from the Silver Institute.

In 2005, China exported just over 100 million ounces of silver. Last year, they imported just over 120 million ounces. This is a shift of more than 200 million ounces in just six years. Considering that total silver supply in 2009 was just 889 million ounces, China's hunger for silver should have real impact on the market.

This is in addition to all the OTHER forces having an impact on the silver supply/demand picture — soaring demand from ETFs and funds that hold physical silver, increased demand from industry, record sales of silver coins and medals and more.

How to Play the Bull Market in Silver

How you play this is up to you. Do you want to wait for another pullback or pay up now? That brings up another question: Do you think silver prices will be higher or lower a year from now? My answer is higher. Probably a lot higher.

Last week I recommended the iShares Silver Trust (SLV) as a way to trade this bull market. If that doesn't fit your investment profile, then consider one of the better silver miners.

For example, I recently recommended shares of Silver Wheaton (SLW) to my Red-Hot Global Resources subscribers ... again. That position is already showing nice open gains, which on Tuesday were close to 10% before commissions. (

Last year, the company produced 22 million ounces of silver and 28,000 ounces of gold. By the end of 2013, the company forecasts that will rise to 38 million ounces of silver and 59,000 ounces of gold.

You may have missed the first surge of open gains as Red-Hot Global Resources subscribers rode Silver Wheaton higher. Don't miss the next leg up.

But remember, if you're doing this on your own, you have to have a plan not only when to buy, but when to sell. Be careful because just when you think you have a bull market by the horns, you may have a tiger by the tail.

Good luck and good trades,


P.S. I'm at the World MoneyShow in Orlando, Florida, today. If you're attending the show, please stop by the Weiss Research booth and say hello. I always enjoy meeting subscribers.

Sean Brodrick is a natural resources expert and editor of Crisis Profit Hunter, a monthly newsletter with a primary mission to help you profit from crisis situations and other dynamic forces affecting the global economy. Commodities and dividend-paying stocks are central to his approach, and he also delivers practical advice for uncertain economic times. For more information on Crisis Profit Hunter, click here.

Sean is also the editor of Red-Hot Global Resources, a weekly newsletter that aims to help you rack up profits with commodity-focused exchange-traded funds (ETFs) and natural resource-sensitive stocks that operate around the world. For more information on Red-Hot Global Resources, click here.

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