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Steve's note: Today's essay is written by precious metals expert Jeff Clark of Casey Research. When it comes to precious metals and resource investing, the Casey group is among the best outfits in the world... so it's always worth considering their views. If you're interested in silver, you need to read Jeff's current take... The 2010 Silver Buying GuideBy
Thursday, June 24, 2010
Since reaching a low of just under $9 per ounce in November 2008, silver has more than doubled in price.... and it's now closing in on its highest point in more than a decade.
This price strength from the "poor man's gold" has spilled over into tremenous investment demand – especially so for silver coins.
The U.S. Mint sold more Silver Eagles in the first quarter of this year – just over nine million – than any prior quarter in its history. The Royal Canadian Mint produced 9.7 million silver maple leafs in 2009, also a record.
Take a look at the jump in U.S. Mint coin sales since 2007:
 Silver bullion ETFs are growing, too, experiencing a five-fold increase in metal holdings since 2006.
I'm a huge long-term bull on silver and gold. The only way the Western world can pay for its huge unfunded liabilities is to print more money... which is very bullish for precious metals.
But... I'm also a contrarian. With so much investment demand toward silver right now, the hard question is, "Should I be buying silver right now?"
Let's first look at the big picture. The following chart shows how far silver is below its inflation-adjusted peak reached in 1980.
 As you can see, from a big picture point of view, silver hasn't run up all that much in the past decade.
So, my advice to anyone who does not own silver, and wants the long-term wealth protection precious metals offer, go ahead and buy. The risk of buying silver at current prices is lower than owning none at all.
If you do own some silver but want to add to your holdings, I'd wait for a drop in price, in part because silver could fall more easily than gold when the economy is found to be more fragile than what many believe. Approximately half of silver's demand comes from industrial uses, so it's more susceptible to selloffs than gold if the global economy gets weaker (we at Casey Research believe it will).
Further, summer usually brings pullbacks in precious metal prices. This is the tendency, though we can't guarantee this summer will follow past trends. Still, our best guess is to anticipate another leg down sometime this year, perhaps this summer. If you already own silver, look for a correction before adding to your holdings.
To summarize, if you don't own silver yet, go ahead and buy some now. It's enjoyed a considerable run recently, but is still well below its previous highs when viewed over the long term. If you simply want to add to your silver holdings, take advantage of its volatility and wait until prices fall at least 10%.
Regards,
Jeff Clark
Further Reading:
Silver is one of the top portfolio recommendations of our friend and master investor Chris Weber. You can read why Chris holds a considerable portion of his wealth in silver here: Why I'm Happy to Hold Wealth in Gold and Silver.
A huge potential source of silver investment demand is China. The Chinese have a centuries-long affinity for the metal… and the Chinese government encourages its citizens to buy precious metals. Read more about the idea in this essay: China Is About to Buy a lot More Silver.
Market NotesTHE BREAKDOWN IN HOME DEPOT IS GETTING WORSE Remember the "dangerous breakdown" we noted in Home Depot (HD) shares? It's getting worse…
To recap, we keep Home Depot shares on our watch list for one big reason: It's America's largest chain of home improvement stores… which makes its share price and profits rise and fall along with spending on the American dream. If the Depot's share price is tanking, it's a bad omen.
Driven by the huge government "goosing" of the housing market, HD shares soared off their March 2009 bottom into the mid $30s. But several weeks ago, we highlighted how HD shares broke their uptrend to hit their lowest low in two months. This weakness has come on massive trading volume as traders fled the "housing trade."
On Tuesday, HD continued its horrid summer performance and struck its lowest low in four months. And again, the weakness came on big trading volume. If Home Depot continues this downtrend, it's a strong sign the government goosing is wearing off. We've no doubt the geniuses in Washington, D.C. will order up a fresh boondoggle to fight this trend.
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