The Case For Silver from a Canadian Legend…
Legendary resource investor Eric Sprott has 35+ years of experience in the natural resource industry.
He’s built his company, Sprott Resources, into one of the largest independently owned resource investment firms in Canada.
When Eric Sprott speaks, wise investors listen… and Sprott has recently gone on record as saying, “Silver will be the investment of this decade.”
In fact, Sprott went so far as to predict that silver will easily double or triple in price over the next few years.
Here are a few reasons to listen to Sprott:
He doesn’t just make bold predictions in order to sell books or get media attention (like most Wall-Street celebrities). He’s got his own money at risk in this – so he definitely works hard to get it right.
Sprott looks at the long-term fundamentals of an industry and invests accordingly.
For example, he was funding small Canadian gold companies already 10 years ago when gold was trading at $250 an ounce.
That means he was buying gold seven years earlier than high-profile hedge-fund managers like John Paulson and George Soros.
Now, with gold at roughly $1,600 per ounce, his investments have soared 500%-1,000% in value.
So does Sprott think the window of opportunity has passed? Nope. He thinks silver is going to continue to climb. He recently mentioned $100 an ounce at an investors meeting. That would be more than a 230% gain from the current price of about $30 an ounce.
He bases his prediction on fundamentals, not speculation. One of the main reasons he cites is that we’re running out of silver. Here’s how he put it:
Annual [silver] production is about 900 million ounces per year, including recycling. Industrial usage alone will rise to 660 million ounces by 2015. That leaves only 240 million ounces for coinage, central bank purchases, and investment.
In case you didn’t know, industrial usage for silver is increasing. It is a major component in electronic devices and semiconductors … plus it is now being used in electric cars batteries to boost performance.
All of these industrial uses are surging right now as the whole world (even developing nations) are demanding the convenience of smart phones and other personal electronic devices.
Demand for silver coins is also rising. U.S. retail investors have been buying up freshly minted silver coins at a record pace over the last few years.
And if the Fed announces more money printing in the future … it will drive these purchases even higher.
Internationally, silver is more readily accepted as a store of value than in the mainstream U.S. and European financial communities.
In fact, China and India are the two largest silver-consuming countries in the world.
Some Caveats about Silver
But that is also one of silver’s “gotchas.” The economies of India and China have slowed significantly in the past year. That’s a big factor in why silver prices have been trading sideways since October of 2011.
When those two nations were buying (lots of) silver back in early 2011, the price surged up. Unfortunately, it moved too fast and has suffered a major correction since then.
Also, because silver is so widely used as an industrial metal, its price often ebbs and flows with economic growth and stagnation, much the same way copper does. Economic recession (or depression) could adversely affect future silver prices.
And then, of course, there’s the threat of price manipulation. Silver is a perfect target for price manipulation for several reasons.
First, since it is considered “poor man’s gold,” first-time silver buyers who get caught up in a new price surge are often less sophisticated … and more emotional. Professional investors use this to their advantage to profit from that lack of knowledge.
For example, many new silver investors flooded the market in 2011 when silver was soaring. Thousands of silver “newbies” bought silver for the first time when it was selling north of $45 per ounce.
Since then, the market has been shaking off these fly-by-night investors. Last week we told you about a “squeeze” going on in the gold market. The same thing has happened in the silver market.
Here’s how it works: Many large investors sold all their silver last Fall and have stayed away since. Even some of the largest banks in the world have been purposely “shorting” huge amounts of silver to keep the price low.
The purpose is to squeeze the emotional investors (newbies) out. Many people who bought their silver in 2011 and tried to hang on through the Spring and Summer of 2012 have finally thrown in the towel and sold their silver stashes … at a loss.
Now the smart investors will start piling back in and the price will go up. For the big-time investors, it’s a rinse-and-repeat process that they use time and time again to wring profits out of the unsophisticated “newbie” market.
Little guys get caught in these kinds of squeezes all the time. Which is why if you want to buy it, you should only…
Buy Silver…
I buy silver for the fundamental reasons that Eric Sprott mentions above (and for many other solid reasons.
Despite all the caveats to buying silver, we still believe it can be an important asset to own during the coming financial crash. Like gold, silver will be a very good chaos hedge.
In fact, many experts suggest having an easily accessible stash of “junk silver” as part of your emergency disaster-protection plan. (“Junk silver” is used silver coins that have no “collector” value – but still have the intrinsic value of silver).
The idea is that these small-denomination silver coins will be easy to “barter” for essential necessities in times of crisis.
Since they are easily identifiable (e.g. U.S. dimes and quarters that are pre-1965 are 90% silver), you don’t need a middle man like a coin shop to verify their worth.
But as good of a reason all this is…
…we’re banking on one other factor as a reason why silver could easily be the best investment of the decade.
Why Silver is Dramatically Undervalued
Historically, the free market has valued silver at a ratio of 12 ounces of silver to 1 ounce of gold. This rate has been fairly consistent (between 10:1 and 16:1) for thousands of years.
The reason is simple. There is roughly 12 times more silver in the ground than gold.
But that’s changing…
There is less silver available today than ever before, and the current estimates put the available ratio at 8 to 1. Why?
As Eric Sprott mentioned above, nearly 3 out of every 4 ounces of silver that is mined or recycled is used for electronics or industrial use … and a lot of that ends up in landfills.
So silver should be priced anywhere from 8:1 – 16:1 compared to gold.
Instead, the current silver to gold price ratio is 55:1.
That means silver would have to go up to well over a $100 per ounce right now just to come back into historical norms.
We don’t expect that to happen overnight, but it has a great chance of happening, especially when the chaos of the looming financial crash hits.
How to Get in on the Silver Rush
Just like with gold, I don’t try to “time” my silver purchases perfectly.
But I do feel this is still a good time to get in before the price takes off again.
And dollar-cost averaging by buying a set amount of silver each month is still a great way to establish your silver stash without getting emotional about the price.
There are many other things you need to research before you jump into the silver market.
It is EXTREMELY volatile (silver has traded from $3 per ounce to $48 per ounce in the last 10 years … and it has had some major pullbacks along the way).
If you can’t handle that kind of volatility on the way to the top, then you’re better off sticking with gold.
But if you want to get in on the potentially monstrous gains that await the patient investor…
