Wednesday, August 31, 2011

Silver Fundamentals

There has been a lot of talk about gold recently. Gold holds a special allure amongst the masses. No one really knows why, but it engenders quite an emotional response from even the most conservative of people.

Perhaps it's those old mythical tales of pirate treasure or the riches of ancient civilizations like Egypt. Seeing and wanting the yellow shiny stuff makes people do all sorts of crazy things. Even killing for it.

But gold has a lesser cousin, one that is not mentioned much at all in the media; silver.

There are many savvy investors in the precious metals community who would rather own silver then gold. Or rather be over-weight silver in their portfolios.

So what is it about the 'moon' metal (ancients used to equate gold with the sun and silver with the moon) that is attractive.

For gold, the main reasons for owning it are; protection against monetary stupidity (manipulation of the money supply) and fiscal asininity (governments gone crazy) and as an insurance against financial disaster.

Silver can be held for similar reasons, but has more of a investment feel about it than gold does. Gold isn't really classed as an investment, more of a preserver of value and is pure money.

So what are the fundamentals for owning silver?

1. Silver has amazing qualities as an industrial metal. It is used in electronics because of its conductive qualities. The world is highly dependent on electronics, and increasingly so. Silver has high demand in the health industry as an anti-microbial additive. Food is preserved in thinly lined silver plasics. Silver is used exstensively in hospital equipment. Note, if you have silver plates at home, then actually using them and putting food on them is a great idea. The 19th century elite knew a thing or two.

Moreover, because of these industrial uses, the silver content of the products involved is invariably lost when the products are discarded. Therefore, much of the silver that is mined is lost. The amount of silver above ground, because of these uses and more ahead, is decreasing. Therefore, physical demand is sure to be strong going forward.

Added to this are the costs of mining are rising as silver gets increasingly more difficult to find. Scarcity followed by high demand always bring higher prices.

2. Investment demand is increasing. More people are catching on to the silver story and investing in ETFs (not recommended) and also buying and storing physical metal (the best approach).

3. Manipulation. If you believe in the theory that the silver prices are manipulated by large institutions, then you will also believe that prices are too low because of this. Even if manipulation isn't occurring, the fundamentals still point to higher prices.

As stated above, ancients used to equate gold with the sun and silver with the moon. Prized metals indeed. But there is nothing spiritual or crazy about owning precious metals. It is never an easy decision to place your hard-earned wealth into an asset class. One gets understandably nervous. Those with vested interests will always spruik their products as being the best. It is not easy to trust people.

I have outlined some fundamentals here, but if you go to some of the links on this blog site, you will see other well reasoned experts doing the same.

Gold in New Zealand dollars: $2153.88 per oz
Previous all time high: $2319.47 per oz (23 Aug, 2011)

Silver in New Zealand dollars: $48.46 per oz
Previous all time high: $59.19
per oz (30 Apr, 2011)

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The Anglo-Far East Company
The Original Private Gold and Silver Bullion Custodian
Your reference: an-001
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