Investing in Silver: Is This Precious Metal Set to Beat Out Gold?

By Tony D'Altorio

Silver has served as a measure of value and currency for over 4,000 years. As early as around 600 B.C., citizens of Lydia used it for coins. But while hardly new, it’s still giving investors something to talk about these days.

In the past month, silver has hit prices it hasn’t seen since the Hunt brothers tried to corner that market over three decades ago. Their attempts drove the commodity to nearly $50 an ounce in 1980. Today, just like back then, many individual investors are buying up what some call “poor man’s gold.”

Gold may be capturing headlines and new record highs. But silver is shining too… enough to make many wonder whether its forward returns might just beat out gold’s.

Silver Bugs Enjoy Gold Bug Arguments

Silver bugs like many of the same arguments that gold bugs do:

• The Federal Reserve’s upcoming QE2, a second round of emergency monetary easing, will lead to much higher inflation in the future.
• Many central banks may very well devalue their currencies to further domestic growth, thereby sparking a global “currency war.” (Incidentally, the Federal Reserve is heading that charge as well, with its massive money creation.)

In reaction, silver coin sales are hitting record highs this year.

The US Mint sold 27.5 million in silver American Eagles so far in 2010, well within reach of last year’s record 28.8 million ounces… with the holiday season still ahead. And the Royal Canadian Mint has already sold over 30% more of its silver Maple Lead coins than last year’s record 10 million ounces.

Plus, investors have snapped up more than 1,500 tons of silver through ETFs in the past two months alone. That’s more than 5% of total annual silver supplies. It has become one of the best-performing commodities this year. Over August and September, it rallied 31%… more than three times gold’s rise.

Global Silver Demand Ramps Up

Silver investors are betting on how silver consumption still relies heavily on jewelry demand and demand from certain industries. So that should mean as the global economy recovers, so will silver.

Already, there has been a strong rebound in industrial demand for the resource in traditional areas like electronics. And add to that the solar power industry’s new need for silver compounds to convert sunlight into electricity.

CEO Scott Morrison of Metalor, one of the world’s top precious metals refiners, says:

Industrial demand for silver is very strong – back to 2008 levels or even better.

Still, investors will likely remain the main force behind silver prices for now. Also, the addition of hedge funds to the mix may lead to sizable, short-term volatility. Because the silver market is a so much smaller than gold’s, large investments can make bigger impacts on prices.

2 Easy Silver Investments for Portfolio

Investors can capitalize on the metal’s bull market through silver investments such as bullion coins or ETFs that hold the commodity.

The latter includes ETFS Physical Silver Shares (SIVR) which keeps its stock in HSBC (HBC) vaults. And all of it conforms to the London Bullion Market Association’s rules for good delivery.

Then there’s Global X Silver Miners ETF (SIL), an especially good choice. It holds a number of silver mining companies, including:

• Silver Wheaton (SLW)
• Pan American Silver (PASS)
• Fresnillo PLC (FNLPF.PK)
• Industrias Penoles (IPQAF.PK)

Those four make up 50% of its portfolio. Fresnillo, for those who may not know, is the world’s largest primary silver producer. Also Mexico’s second largest gold producer, it trades on the London exchange and has risen over 50% this year. That’s certainly nothing to sneer at.

Investors who can deal with short-term volatility in silver should enjoy long-term results. Just like Nelson Bunker Hunt, the man who decades ago tried to corner the silver market, said, “almost anything is better than paper money… any fool can run a printing press.”

Those words still ring true today.

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