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The Safest Way to Make Over 1,000% in Silver

By Dr. Steve Sjuggerud
Friday, April 23, 2010

"Silver is now more attractive than it has been in decades," my colleague Porter Stansberry wrote to his subscribers.
"Assuming gold hits my target of $2,000 an ounce and assuming the price of gold is 16 times the price of silver," Porter continued, "then silver should be worth about $125 by the time the bull market in silver reaches its peak. Buying today at around $17 [now $18] could earn you better than a 600% profit."
If Porter is even half right, then a just-launched silver investment could be the safest way to make over 1,000% in silver.

You see, before this week, we didn't have a simple way to buy a basket of silver companies. But now there is...
This week, the Global X Silver Miners Fund (SIL) launched.
This exchange-traded fund owns a basket of the world's purest plays on silver mining – 25 stocks in all, with a fairly significant geographic diversification. (Silver companies from Canada and Mexico each make up a larger percentage of the fund than U.S. silver companies.)
If you think gold mining companies are speculative – then you ain't seen nuthin'. Silver mining companies are extremely volatile. To see what I mean, take a look at the performance of the underlying index of the Global X Silver Miners Fund, versus the price of silver.
In 2008, when the price of silver fell in half, shares of silver mining companies lost 80% of their value.
Since bottoming in 2008, silver mining companies are up FOURFOLD, as you can see in the chart. Silver barely doubled in that time.
Shares of silver companies are significantly more volatile than the price of silver. If Porter is right about the price of silver rising 600%, then silver mining companies could easily soar over 1,000%.
Porter believes silver could go significantly higher because 1) a major currency crisis will push people to put their savings into precious metals rather than dollars... and 2) silver is extremely cheap relative to gold, based on history.
You already heard the case for our exploding government debts leading to a crisis. But you might not know the case for why silver is cheap relative to gold. I'll let Porter tell it:
During periods of monetary crisis, demand for silver as money pushes the gold-to-silver ratio heavily in silver's favor. For example, the ratio returned to its historic range (16) during World War I. It happened again in the early 1970s, when Nixon abandoned the gold standard. It also happened most famously in 1979-1980, when it seemed as if America was really entering a serious money crisis.
As the dollar loses its standing as the world's reserve currency, I expect the silver ratio to decline substantially and the price of silver to increase relative to gold... Silver is the best hedge against a money crisis. In short, there is very little demand for silver as a commodity, compared to the demand for silver when it is used as money.
When Porter wrote his story, you had three basic ways to profit if the price of silver went up...
  • You could buy bags of silver coins from a dealer... but to build a serious position, you'd end up with a garage full of silver.
  • You could buy shares of the iShares Silver Trust (SLV), which tracks the price of silver. (For leverage to the silver price, you could buy double-long and double-short silver funds from ProShares.)
  • You could buy shares of a handful of silver companies.
Now, for maximum upside, with more diversification than owning just a couple silver stocks, you have another option: The Global X Silver Miners Fund, which holds shares of 25 silver companies. It's a volatile basket. But if silver rises like Porter thinks, you could make 1,000%+ here.
As Porter told his readers, "However you decide to own it, make sure you buy some silver now."
Good investing,

Further Reading:

"The real purpose of gold is to hedge against government hubris," Porter told DailyWealth readers back in 2006 (with gold at about $630 an ounce). The same is true of silver. In fact, it's a perfect hedge: "When things go wrong economically – when there's a crisis – the price of silver goes bananas." Find out why here: Why You Must Buy Gold, or Even Better, Silver, Now.
Chris Weber told his readers to buy silver in 2004 at $6.18 per ounce. They're up about 200%, but it's been a bumpy ride. His advice for silver owners? "Be prepared to see it very volatile, and don't have so much that you panic every time silver plunges. In silver bull markets, that's what silver does." Read more here: A Crucial Number for Silver Owners.

Market Notes


Few stocks can say they had a better 2009 than Freeport-McMoRan (FCX).
FCX is one of the big "bell cows" of the mining sector. It is the largest U.S.-based miner... and one of the world's largest producers of copper. It's a stock we track closely at DailyWealth.
After getting clobbered in late 2008, Freeport shares enjoyed a monster 300% rally last year. Copper prices were surging, and traders flocked into mining stocks. But as you can see from today's chart, that rally has fizzled. Shares are unchanged in the past six months... and have "bumped their head" on the $85 level three times. Even a terrific quarterly report this week was greeted with enormous selling pressure that sent shares down 3%.
There's a good case to be made that we should be worried about FCX and the copper price right now. Several mining insiders believe there is an enormous amount of copper being stockpiled and hoarded around the world. You can about read the situation here.
Long term, the Fed's funny-money program is going to devalue the dollar... which boosts the nominal price of commodities like copper. But in the short term, like one year, anything can happen. We say keep an eye on both the $85 level... and the short-term low at $66 per share. FCX tends to boom and bust, so a break of $66 puts it in bust mode... and validates the bear case for copper.

After a big run, the uptrend in FCX has stagnated

Steve's Notes

Badiali's favorite way to play silver...
Today, in DailyWealth Premium, I'm telling readers about mining analyst Matt Badiali's favorite silver play right now. Here's the story:
Its existing production puts cash in its pockets today... and the company is using that cash to fund exploration and future production. It's debt-free, with a pile of cash in the bank. A nice little story of recycling profits into more profits.
The ore this company is mining also contains such large amounts of lead and zinc, the company is able to sell them to offset its costs. The net result of these sales is a cash cost of mining silver that's below zero.
Most interestingly, it's a Canada-based company with the bulk of its operations in China... China is largely unexplored by modern mining techniques, so it has lots of prospects to find more silver. And the Chinese people have a historic cultural affinity for silver... which puts this company in a good spot.
Premium readers can log in to get the details. If you're not reading Premium, and you'd like immediate access to this idea, and ones like it every day, click here.

In The Daily Crux

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