The 2010 Silver Buying Guide

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by Jeff Clark: What
If Doug Casey Is Right?

Silver has
been sizzling and causing lots of buzz in the industry. Investors
are excited.

Part of the
hubbub is due to its current run. Since its February 8 low, silver
has roared ahead 22.4% (through June 21) and has doubled from its
November 2008 low.

This excitement
has spilled over into greater investment demand – especially
so for 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.

There’s
plenty we could talk about with silver, but our goal is to make
money. So let’s focus on answering just two questions: Is today’s
price expensive or cheap? And, what are the best silver coins, ETFs,
and stocks to own?

We have all
the answers straight ahead, including lots of actionable info, so
let’s jump right in…

Why Should
I Buy Silver?

There are several
reasons to own silver in addition to gold.

First, it’s
cheaper! Known as the poor man’s gold, those with limited budgets
will find it easier to purchase. You might hesitate plunking down
$1,200 for an ounce of gold, but you can pick up 32 ounces of silver
for half that amount.

Second, silver
has wide industrial use and this component can help or hinder its
price. As its consumption increases across a growing number of industries,
this should help place a floor under demand. And because of its
unique properties, new uses continue to be discovered.

Third, silver
is money and has served this role more than any other material on
earth, save gold. Due to its historical role, silver will always
have monetary value and offer similar protection as gold to the
ongoing global currency devaluations, and will definitely benefit
from the inflation hurricane we see as inevitable.

Silver is more
practical as a currency used for everyday purchases. When the time
comes, you can sell the requisite number of silver coins to cover
a specific need, as opposed to being forced to liquidate a high-dollar-value
gold holding. Silver is perfect when smaller amounts of cash are
required.

Fourth and
last, silver could possibly outperform gold before this bull market
is over. The market capitalization of silver (and silver stocks)
is much smaller, making its price more susceptible to demand spikes
than gold.

In the latter
part of the 1970s precious metals bull market, gold gained over
700% – but silver soared over 1,400%. If you’ve got a
bit of Gordon Gekko in you, we recommend investing a portion of
your dollars in silver.

Caution
– Hot!

Like all things,
silver has its drawbacks, two in particular.

First, the
price is volatile. Over the past 12 months, silver has seen gains
of 53.8% and 22.9% and drops of 21.9% and 19.6%, all within a period
of months or even weeks.

If you’re
going to own silver, you must be prepared for big price gyrations.
The best way to do that: buy it and forget about it. And…

  • Make
    price volatility your friend.
    Big price swings present the
    opportunity to snag silver at a big discount. We give some guidance
    on prices below.

Second is the
storage issue. As your pile grows, the advantage to storing gold
will become self-evident. At $1,200 gold and $18.50 silver, $10,000
will get you eight gold eagles that will fit nicely in the credit
card slots of your wallet; however, it will buy 540 silver eagles,
weigh nearly 34 pounds, and fill a small bank safe deposit box.

  • How to
    store physical silver.
    There are several ways to solve the
    storage dilemma, even if you plan to buy like the Hunt brothers.
  1. Spread
    your holdings around. Not only is it wise to avoid keeping
    all your physical silver in one place, diversifying your storage
    arrangements allows you to buy more. Hide some at home in several
    locations (no cookie jars, though), and obviously tell only
    one trusted person. Store some in a bank safe deposit box and
    use more than one bank as your holdings grow.

  2. Buy
    bars. Silver bars take up less space than a pile of coins
    of the same weight. We wouldn’t start out with nor have
    all our holdings in bars, because you want the advantage coins
    offer. But the larger your holdings, the easier it will be to
    store some of it in bar form.

  3. Use
    pool accounts and unallocated storage. With a pool or unallocated
    account, you’re essentially getting free storage no matter
    how big your stash. That’s hard to beat. You’ll pay
    fabrication and delivery charges if/when you convert your holdings
    and take delivery, but in the meantime, you save on storage
    costs. Great value for the large holder.

  4. Private
    storage. Store your silver with a private vaulting company.
    The advantage is that it’s outside the banking system;
    the disadvantage is that it’s usually expensive, though
    it can be cost effective for large holdings. Do your own due
    diligence if you go this route because we can’t vouch for
    any facility, but you could start by checking out delawaredepository.com.
    Keep in mind that using a vaulting facility beyond a reasonable
    driving distance will mean added shipping/insurance costs and
    restrict quick access.

Is Now a
Good Time to Buy?

With the gains
we’ve seen in silver, would we buy 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.

Another clue
some investors watch is the gold/silver ratio (gold price divided
by silver price) shown below.

Since our current
bull market in precious metals began in 2001, the ratio, while fluctuating
wildly, has never gone below 45. And yet look where it went during
the precious metals peak in 1980: it bottomed at 17. Even though
gold was soaring at the time, silver outran it.

The ratio might
show relative strength between gold and silver, but it’s not
a good buying indicator. A falling ratio could mean silver is rising
faster than gold, like it is currently, or it could mean silver
is falling slower. As a result, we’d use the ratio to determine
silver’s upside potential but not necessarily when to place
an order.

These big-picture
signals tell us silver is undervalued and, at the moment, a better
bargain than gold. And given the currency crisis we’re convinced
is in the cards, we wouldn’t want to be caught without any.
If you have a long-term mindset, silver is a buy today.

Would we wait
for a better price?

If you do not
own any, and plan on holding what you buy until a mania develops,
then we wouldn’t wait. The risk of buying silver at current
prices is lower than owning none at all.

If you do own
some but want to add to your holdings, we’d probably wait for
a drop in price, in part because silver could more easily fall when
the economy is found to be more fragile than what many believe.
And with industrial uses comprising approximately half of silver’s
demand, it would be more susceptible to sell-offs than gold if our
research is correct about global economies.

Further, summer
usually brings pullbacks in prices, and this can be especially true
for silver stocks. This is the tendency, though we can’t be
sure if this summer will follow past trends. Still, our best guess
is to anticipate another leg down this year. If you already own
silver, we’d look for a correction to add to your holdings.

In our opinion,
owning no silver in this bull market would be a mistake. And your
first (and biggest) investment in silver should be in a physical
form.

How much physical
silver should you have? There’s no right answer and one size
will not fit all. But we do recommend holding more gold than silver.
Our suggestion for your precious metal holdings is roughly 80% gold
and 20% silver.

Like gold,
silver comes in different forms. We’d start with the more popular
one-ounce coins and then branch out into other types as your holdings
grow.

The above
is an excerpt from the May issue of Casey’s
Gold and Resource Report
. Find out our top recommended dealers,
including special pricing, along with Jeff Clark’s picks for
the “best silver ETF” and the “two best silver stocks
in the world.” And our June issue is our annual Summer Buying
Guide. You can check it all out risk-free, for just $39/year, with
a 3-month, 100% money-back guarantee. Get
it right here.

June
18, 2010

Jeff
Clark is editor of Casey's
Gold & Resource Report
in Casey’s Daily Dispatch.

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