Art Of Money

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I have this friend who’s really into silver. I mean really into it…he eats on silver plates, with silver forks and drinks from silver goblets.

This particular guy also used to be an investor relations officer in a previous job incarnation. So it’s safe to say he knows his way around the stock markets.

The last time I sat down and had coffee with him I wrote this story about silver investing on my old site. That was May 26, 2005 and silver was ~ $7.00 an ounce. At the time he went on and on telling me why silver was going through the roof.

About 2 weeks ago we had coffee again and it’s all he can do not to sell his kids to put his money into silver.

Normally, despite my earlier mini-rant in my own comments, I’m not the kind to buy high and hope a stock goes higher. But here’s what my silver obsessed friend says.

• Current world wide consumption of silver is about 1 billion ounces annually. Worldwide production is 500 million ounces annually. That’s a 50% shortfall annually.
• There is much less silver than gold in the earth.
• A big one: silver differs from gold in one key factor. When gold is ‘used’ it is normally still available. For example you create a wedding ring…after a couple years you still have the wedding ring and the gold is still available. Silver is used primarily in industrial processes, meaning when it is ‘used’ it is gone.

He went on and on with good reasons but the bottom line is that the underlying fundementals on this precious metal are fabulous. The market has still, for the most part, missed the biggest story of the year in investing.

What is interesting to us is that the mainstream media and average investor have no idea what is going on. CNBC has a ticker in the morning that includes some commodity prices, but silver remains absent. Web sites such as MSN and Yahoo spit out headlines about Google, retail sales, and oil – it is only on rare occasion that gold is mentioned and that is when the price breaks $400/oz or $500/oz. Even the commodities sections of major financial web sites seem to ignore silver…

A little more than twenty six years ago, when the silver market was being cornered, the general public started to wake up. At the very top, there were news stories about average people taking their silverware in to be melted. While we are not anticipating a repeat of early 1980, it is logical to think that the bull market will not end until we see the public paying attention to what is going on.

Why? Silver isn’t sexy. It has been devalued by the public because of comparisons with gold. You know the saying at the Olympics…”second place [a silver medal] is the first loser.” Fine with me.

So better a year late than never. I broke down and got some advice from my buddy and started buying. General advice he gave was to buy only bullion or mining companies. Paper silver is about as worthless as paper dollars…it isn’t backed by any real reserves and when the market realizes that the price of actually silver bullion could skyrocket.

About ten days ago I picked up a hunk of bullion for what seemed, at the time, the exorbitant price of $10.50 an ounce. Today, only ten days later it is worth $11.50…almost a 10% gain in 10 days.

Yesterday I also followed more of his advice and grabbed three junior [and highly risky] mining companies. ORM.V at .80, CZN.TO at 1.25 and GPR.V at 1.70. In less than 2 trading days ORM is flat, CZN is up 2.3% and GPR has gained 11.2%.

It just looks to me like there is a silver volcano about to erupt here. It does take guts though because I’ll be the first to admit the prices on all these stocks look very high.

I’m curious to hear what others think about silver right now. Why isn’t the story bigger? Is it only the new ETF that is artificially driving up prices?

Disclaimer: I’m not a professional advisor or investor. I am not telling you that I think you should do the same as me and actually purchase any silver or stocks of any kind. If you do buy any silver or stocks you do it at your own risk and you take full responsibility for any losses that you incur. Investing is risky and you should consult professional advice before entering into any investments. Whoosh!