This ETF Could Help You Cash in on the Silver Rush
By John Whitefoot for Daily Gains Letter | Feb 8, 2013
When it comes to investing in precious metals, gold has been stealing the spotlight. If you’re looking to add precious metals to your investment portfolio, however, you might want to take your gaze off gold and focus on silver.
Thanks to global currency devaluations, investors have been turning to precious metals, gold and silver especially, as a hedge against inflation. Aside from its price point, why should investors consider silver? It’s all in the numbers.
During the Federal Reserve’s first round of quantitative easing from December 2008 to March 2010, silver climbed 53%—twice as much as gold. During the second phase of quantitative easing that ended in June 2011, silver increased 24%—three times as much as gold.
In September 2012, the Federal Reserve an
nounced its third round of quantitative easing; unlike its predecessors, this one is open-ended. If history is any indicator, silver should outperform gold in 2013.
How can investors protect and even build their wealth in a seriously depressed economy? In 2013, investors have an unprecedented opportunity to purchase silver exchange-traded funds (ETFs).
iShares Silver Price vs. Silver Pric
Chart courtesy of www.StockCharts.com
Currently trading near $31.00 per unit, the iShares Silver Trust (NYSEArca/SLV) is an ETF that (as the above chart illustrates) trades in step with the price of silver. The iShares Silver Trust ETF holds silver bullion and is designed to provide investors with a simple and cost-effective method to gain exposure to the price of silver without actually having to purchase it.
In operation since April 2006, the units of this trust are backed by physical silver—worth approximately $10.0 billion. According to the company’s most recent inspection certificate, the iShares Silver vault was last inspected in June 2012. (You can read the reports here.)
At the close of business on June 15, 2012, the iShares Silver Trust held title to 318,578 silver bars for a total of more than 3.1 million troy ounces. The next inspection will be on or before March 15, 2013. (Source: “Inspection of Silver Bullion,” iShares web site, August 24, 2012, last accessed February 7, 2013.)
For those investors who don’t have deep pockets, buying a silver-backed ETF is a cost-efficient alternative to investing in physical silver and fortifying your portfolio.
Not convinced that a silver ETF can protect your investment portfolio against a devalued U.S. dollar? Consider the following.
When the U.S. economy was on the verge of collapse after the financial crisis of 2008, the Federal Reserve came to the “rescue.” The central bank provided the financial system with three rounds of quantitative easing—it printed money and bought bad debt from the big banks. Since that time, the Federal Reserve’s balance sheet has ballooned to $3.0 trillion; and it continues to grow at a robust $85.0 billion a month—with no end in sight.
When the financial crisis began in 2008, the U.S. national debt stood at $9.2 trillion. Based on the White House’s own figures, the national debt will reach $20.0 trillion by the end of this decade—about 140% of our current gross domestic product (GDP).
The extra dollars pumped into the economy were supposed to stimulate growth. It also has the reverse effect of shrinking the buying power of each dollar. This happens to be the driving force of inflation. As the U.S. dollar declines in value against other world currencies, goods imported into the U.S. become more expensive.
Chart courtesy of www.StockCharts.com
The above chart tracks the price of silver against the U.S. Dollar Index; zero percent represents the 200-day moving average (MA). In late June, silver was off 14.3%. Over the ensuing months, as the U.S. Dollar Index began to decrease, the price of silver rose; and by early October, silver was trading up 13.8%—for a spread of approximately 30.0%. Over the same period of time, the U.S. dollar traded declined from 4.5% in late June to 0.1% percent in early October.
So, if you’re looking for a precious metal that historically outperforms gold…look no further than silver. Since trading as low as $4.00 per ounce in late 2001, silver reached highs of almost $50.00 an ounce in 2011. While silver prices have retraced a bit, the metal is still up more than 675% from its 2001 lows. When it comes to a precious metal bull market, silver consistently outperforms gold.
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