Investing in Silver The Teflon Investment

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As seen in charts, in late 2012 those investing in silver saw their portfolio allocations perform admirably and then consolidate for several months. In April 2013, however, a significant and somewhat swift correction ensued, renewing the debate as to whether the bull market around investing in silver had ended. Indeed, silver is affected by all the same forces as are other investments, including image, public sentiment, supply, public policy, and demand. Silver is unique among precious metals, however, in that it can thrive in multiple scenarios that would generally be considered undesirable economic circumstances.

Advantages of Investing in Silver
All precious metals have significant application in one arena or another, some more practical and some more aesthetic. Silver is alone in the group in that it can claim to be widely used as money. Indeed this has been true for thousands of years because of its unique combination of qualities including durability, rarity, and fungible (interchangeable) nature. More recently and contributing to the value of the metal, silver has come into increasing use as an industrial metal.

Governmental Influences
Quantitative Easing (QE) (that is, the purchase of bonds by central banks with newly printed money in a devalued currency) continues to be commonly applied across the globe by major powers. The objectives of QE are to achieve lower interest rates and higher bond prices, both conditions that encourage economic growth in otherwise slower times. QE results not only in rising stock and commodity prices, but also in rising silver prices due to the finite supply of the metal and the devalued currency purchasing it. How long QE will continue is a subject of debate, and the answer to that question has significant impact on the view of the future for silver prices. In particular, the major economies want to avoid deflation that would cause havoc in financial systems. Thus, many believe that QE will not end in the foreseeable future.

The strategy of QE will work so long as faith in currencies remains. Should that faith falter, the alternate scenario of hyperinflation would ensue. Fortunately for silver investors, silver and other precious metals are used as hedges. High inflation is also the friend of those investing in silver.

Thus it is that at least in either of these two potential adverse scenarios, silver would remain a solid investment.

As with most investments, there is the paper that represents the entity and which trades, and there is the underlying entity that the paper represents. While it may seem strange to the casual investor, there can be a disconnection between the paper and the precious metal it represents. Currently, such is true of silver. Artificially depressed paper prices can lead to decreased supply, widening the gap, and resulting in a tendency of investors to deal with the commodity directly rather than the paper that represents it.

Is There a “Bubble” in Silver Prices Now?
The speculative public frenzy now surrounding gold is nowhere in sight for silver and indeed common ownership of silver is nowhere near that of gold. As a result, market forces affecting those investing in silver are of a much more natural bent. Indeed, should such public recognition of the silver market emerge, prices should go even higher.

What’s the Prudent Thing to Do?
In any investment portfolio, carefully considered allocation among a basket of opportunities is always the best avenue to success. For reasons outlined herein, silver ranks very high versus other metals as an attractive investment. For most investors, about ten percent of their wealth toward investing in silver is a good rule of thumb for investment allocation.