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Silver lining
In fact throughout the Lehman's debacle the price of gold actually fizzled like a Hong Kong typhoon and year on year January 2008 to December 2008 made very little gain. If gold was going to do anything short of spectacular we would have expected it to happen during the course of the last quarter of 2008. Yet some are still expecting gold to break through to highs once more in the future. They may be right, but our belief is they could be waiting for quite some time. Silver on the other hand is a completely different story and won't reach new historical highs based just on investor fears or as an inflation hedge but will peak and break through record highs due to consumption and supply/demand factors. This could happen very quickly in the future and without warning. Inflation will ultimately come back with some force but we believe there are far better reasons for holding positions in silver. Consumption is a major consideration for owning silver at the moment. The pending silver rally is inevitable and most private investors will inevitably miss this. Whereas gold is just a metal hoarded by panic stricken investors in safes, bank deposit vaults and jewelry boxes, silver on the other hand is scarce and required for industrial use. Silver is used in everything from electronics, solar, scientific mirrors, wound dressings, tooth fillings, photography and even a speciality sock called carnation socks. In some countries such as India and Pakistan it is also used in sweets with a thin layer of silver decoration known as vark. There is a real and apparent supply/ demand issue which is only just coming to the awareness of those who use silver in their jobs, and the smart savvy investor who is taking note of the silver story which is now gathering momentum. Major mints around the globe have been halting production of silver coins and there is a worrying lack of supply of everything from the most basic of silver coins to American Eagles and the most sought after Canadian Maples. These are well known accounts from different countries where literally hundreds of investors have been queuing to buy some of this precious metal only to find that the mint has run out. Silver is volatile by nature but has been on a steady climb from around US$9 (HK$70.20) to the current US$14 dollar level. As exchange-traded funds become even more popular we believe that further "silver" money will end up in ETFs. The iShares Silver Trust, the largest ETF backed up by physical silver has increased by record amounts so far this year hitting record highs just a couple of weeks ago. Carlos Sanchez, an analyst at New York-based metals consultancy CPM Group, said: "Silver could surpass last year's 28-year high of US$20.92 in the second half of this year if investors remain optimistic about an economic recovery and the US dollar keeps falling. Since silver, like most other commodities, is denominated in dollars, a drop in the greenback drives prices of the commodity higher. "It's definitely possible that prices pass that level to above US$20," said Sanchez. "You have stock markets rising, you have industrial demand expected to pick up later this year, and investment demand will continue to rise." Historically silver is trading well below its inflation adjusted high of approximately US$1,400 per ounce so it makes for a compelling case to add some of this shiny metal to a portfolio which could in fact blast off if silver returns to its previous highs. Silver is already starting to trade higher as investors and traders start to reposition their portfolios based on consumption issues, supply and demand factors and not just due to inflation protected hedging. The silver story is not one of doom and gloom, make-believe or fairy tales but based on fact. Smart investors who wish to benefit from the inevitable upside in silver should therefore adjust their portfolio accordingly and quickly. There are many ways to own silver and you do not need to make room in your safe for silver bullion bars. In this respect it's best to speak to a professional for advice. Paul Ramscar is director, wealth management, at Financial Partners. |
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During the worst financial meltdown we have ever witnessed many investors expected gold and other precious metals to skyrocket to levels never seen before.