Silver Still Sparkles Value

By Aaron Levitt | August 03, 2011 AAA

As the current debt malaise continues to plague the markets, investors have renewed their interest to gold. Flocking to funds like the ETFS Physical Swiss Gold Shares (NYSE:SGOL), the precious metal has seen its price skyrocket to over $1,600 an ounce. With gold continuing to barrel higher and predictions of $2,000 gold once again hitting the newswires, investors looking for value may want to consider gold's "poor man's twin". The white metal is currently about 40 times cheaper than gold, but some high-profile analysts think that could change over the next year. (To learn more about gold and silver, check out Trading Gold And Silver Futures Contracts.)

TUTORIAL: Commodities

Long-Term Upside
Doubling as both a precious and industrial metal, silver could be a great buy over the next year. Benefiting from the one-two punch of investors looking for safe-haven hard assets and climbing industrial demand, silver prices rallied to a record high in the first half of the year. Nonetheless, due to increased COMEX margin requirements for futures traders, silver has dropped about 20% from its high, even as gold continues to hit its record levels. Despite this, the bullish demand trends for silver remain in place. According to metals research group GFMS, worldwide silver demand for investment purposes climbed nearly 40% in 2010. Industrial demand rose 20% to nearly 488 million ounces. Estimations by the Silver Institute highlight the bullish trend for silver demand. The group predicts that rising industrial demand from emerging markets will be 666 million ounces by 2015.

These long-term bullish demand numbers have some analysts hiking their price targets for silver to unheard-of highs. According to technical analysis done by analysts at Citigroup (NYSE:C), the silver market is following similar patterns as it did between 1971 and 1980. Following this pattern, they predict silver could hit $100 an ounce over the next year or so.

'Investment of the Decade'
Famed Canadian fund manager and hard asset fan, Eric Sprott, still believes in the metal. Recently he told the Gold Report that silver will be the "investment of the decade". Sprott believes that silver prices will climb back up to the historic average gold/silver ratio of 16:1. Over the next five years, Sprott predicts a $2,500 an ounce price for gold corresponding to a $160 price for silver. Overall, Sprott expects silver prices to rise above $50 per ounce by the end of 2011.

Silver is also benefiting from other attributes. For one, its affordability. With gold rising higher and higher, silver remains a cheap option for smaller investors looking for hard-asset exposure. Silver also benefits from its industrial factor. The majority of silver used in these applications is consumed and destroyed, removing it from the supply. (For more on the gold/silver ratio, read Trading The Gold-Silver Ratio.)

Playing the Silver Bull
For investors, the recent pullback in silver prices can be used to add the metal to a portfolio. The iShares Silver Trust (NYSE:SLV) and ETFS Physical Silver Shares (NYSE:SIVR) are the easiest ways for investors to track silver prices. These ETFs represent a ounce of the metal. Longer-term holders may want to consider the SIVR as it offers investors a cheaper expense ratio at 0.3%. For those wishing to place their bets with Eric Sprott, the Sprott Physical Silver Trust (Nasdaq:PSLV) offers a physically backed trust managed by the superstar.

For investors seeking potentially more leverage from their silver investment, the companies that mine the metal will continue to do well in the face of higher prices. Both Pan American Silver (Nasdaq:PAAS) and Silver Standard Resources (Nasdaq:SSRI) remain well below their respective 52-week highs and trade for reasonable P/Es. For investors looking for a catchall miner play on silver, the Global X Silver Miners ETF (NYSE:SIL) tracks 25 different miners including Hecla Mining (NYSE:HL) and Coeur d`Alene Mines (NYSE:CDE). The fund has become immensely popular with investors in its short lifespan.

Bottom Line
With the continued flight to quality and hard assets in the face of currency debasement and debt issues, silver will sparkle. With both investment and industrial demand at its back, several top commodities analysts predict much higher prices in the near future. For investors, adding a fund like the PowerShares DB Silver (NYSE:DBS) or a miner play like Endeavour Silver (NYSE:EXK) could do your portfolio some wonder. (For more on Silver, see Is Silver The New Gold?)

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