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I have posted before on SLV, and, to save you clicking on my portfolio, hold a substantial position in it. Just for kicks I also have some 10oz silver bars as they are pleasing to the eye.
Much of my reasoning for acquiring SLV is based on the work of a gentleman named Theodore Butler who runs a silver-oriented website. He has a fascinating interview that came out today which I would love other gurus to read. If he's right, and he seems to be beholden to the facts, there is some very, very interesting stuff afoot in the silver commodities market. Please share your thoughts.
http://news.silverseek.com/TedButler/1211293587.php
While silver is in a bit of a unique situation, it is a good example of why I feel the commodities "bubble" is anything but. Less resources, more people = demand.
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arawak
May 20 at 1:39 ET
and I forgot to add.. silver is up almost 4% today which is massive for a metal.
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Kohalza
May 21 at 4:24 ET
I made a silver play about a month ago with SLV and 2 other stocks: SLW and PAAS. They all went down a little but are now regaining value and will have a lot of upside.
SLV is a silver ETF, while SLW and PAAS are involved in silver exploration and mining. It's easy to see that all 3 stocks have very similar charts, so a savvy investor who believes in the future of silver will spread the risk between the 3.
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guliamo
May 21 at 9:39 ET
I have an intrinsic problem with betting against myself. If silver is an anti recession bet that means you guys believe the market will go south. If you believe the market will go south, why hold any equities at all? what's the point in building a bull's portfolio and using some of it to bet with the bears.. aren't you better off decreasing the risk just by having less of your money in equities?
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arawak
May 21 at 3:38 ET
I think you over-simplify the silver strategy. It's not just a greenback hedge (but that's certainly an attractive angle to it). If what Butler writes is true -- and it seems to be -- we will be facing an increasing shortage of silver. Couple that with the bizarre short position that's out there and you have some compelling incentives for silver investing regardless of where the dollar goes. Also factor in the increasing use of silver in medical, etc, and demand looks set to grow.
Ditto for the rising wealth of China and India whose hordes will want to start adorning themselves with shiny trinkets like we do in the west. If everyone in the BRIC countries bought a small silver ring the available silver would be used up overnight. Obviously this won't happen as the price will rise and make it as expensive as gold. That would spell major profits for Arawak.
HI-HO SILVER!!
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guliamo
May 22 at 4:43 ET
I suppose demand for any raw materials is off the board with the awakening of the asian dragon, but why wait around for the Chinese to buy a silver piece of jewelry when I KNOW they will be buying Oil, Aluminum, Copper and steel. Why wait for the little people to buy into this product when their government is spending like crazy on far bigger and safer materials?
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arawak
May 22 at 12:47 ET
I'm not going into SLV because I think people will start buying bracelets. That's just one of many ancillary reasons why I like the metal. Predicated shortage, bizarre short position that could explode, less silver above ground than gold (and they are moving in opposite directions).
These are rough numbers but there is around 140,000 tons of gold above ground.
140,000 tons * 2,000lbs/ton * 16oz/lb = 4,480,000,000 ozs of above ground gold.
Annual production is 2,600 t... 83,200,000oz. Little gets used so gold supply is inflating slowly at ~2% year. People, banks, nations buy, sit on it, and pet it like Golumn because it's "precious."
Back to silver.. annual consumption is around a million oz a year. Above ground supply is guesstimated around 500,000oz. We have less than a year's supply above ground. Central banks have largely divested themselves of silver so there's no longer a pool there. What about all those short contracts? If they start getting squeezed, there won't be enough silver to go around and the price will rocket.
Silver has historically been something like 1/15th the price of gold. It's currently less than 1/50th. Couple that with all of the above and more and I like slv more than copper, coal, etc. It's a complicated issue, but when you start reading...
http://www.kitco.com/ind/lee/nov222005.html
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StockShark
May 23 at 3:27 ET
I read Kohalza's comment where he suggests also buying SLW ans PAAS who deal with silver mining to complement the SLV play. What do you think about that?
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arawak
May 25 at 2:03 ET
It would make sense to looks at silver producers as well as the raw commodity. That being said, both SLW and PAAS have p/e ratios of over 30 which makes me skittish to invest. Additionally, they have already appreciated far more than the commodity itself (SLV). Does this imply market favoritism in a stock versus a commodity? Or do stocks historically generate a better than 1:1 ratio gain over the commodities they produce due to a magnification of operating margins or something of the sort? I don't know. My focus has been on the commodity itself.
It would be interesting to read Guru commentary on the issue of ETF vs. stock appreciation.
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arawak
May 27 at 1:38 ET
I just noticed that my silver figures are erroneous in that I didn't make clear they are in the 000's of ounces. That doesn't change the consumption/production ratios but it does clarify its value relative to gold. Also unchanged is that there is still more gold than silver above ground.
Annual silver production is more than 10x gold but consumption has prohibited gold's accumulation. 646 million oz of silver were mined in 2006. At that rate we would have to divert all of it to the safe for something like seven years in order to attain ounce parity with gold stocks. This, in of itself, is not necessarily a meaningful observation but it does indicate the money vs. industrial commodity tension which will only increase (read - price increase) with time.