Investing in Silver: Beginner's Guide

A Way to High Return Investments

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Sterling Silver Price Performance

May 21st, 2012 · Analysis, Silver Price Predictions, Today's Silver Price

Sterling silver price has been a strong performer lately, breaking through previous resistance and continuously moving higher on the Comex despite the large, concentrated short position by commercial traders like HSBC and JPM. There is evidence showing that more and more hedge funds and investors are requesting delivery of physical silver, especially with the dangers of unallocated paper promises becoming more widely understood. In fact, in February 2010 nearly 15 million ounces were withdrawn with the ETF SLV, with 453 silver contracts being delivered on the Comex (2.3 million ounces). That’s an awful lot of silver!

Read How Will Sterling Silver Price Rise Influence Your Family Silver

Price of the Familly Silver Might Soon Rise

This trend seems to be following the lead of Greenlight Capital, who, in July 2009, shifted their gold position to physical gold rather than GLD. Passport Capital also signaled their desire to do the same with their $1.2 billion Global Strategy hedge fund. When funds of this amount begin moving into a smaller precious metal market, the potential for a fast boom increases significantly. It is fascinating how many heavy weight speculative interests are attracted to sterling silver price long term potential.

Speculation has increased regarding a group of wealthy Asian traders or funds looking to exploit the long-term manipulation scheme due to the massive leverage (100-1) used by the banks that are naked shorting silver with paper contracts on the Comex.

This could be achieved by requesting a large quantity of the physical metal to be delivered en-masse, thereby forcing the naked shorts to rush to come up with the metal that is known to be in short supply. This short squeeze could then force the price of silver through the roof. The probability of this is far higher than it was a few months back. All of this adds up to what could be a once-in-a-lifetime opportunity to generate massive returns in a short time period. If you are not already invested in silver, you just might miss the ride.

It is certainly a good idea to have physical silver, considering the today’s Sterling Silver price, in your possession as it is worth far more in this respect. If you have established a base holding of physical silver it would then be a good idea to consider buying shares in certain silver miners, providing you with extra leverage to the rise in the price of silver. Occasionally pulling out a portion of paper profits could increase your physical Sterling Silver Price holdings and maximize your returns whist ensuring you have a safety net.

As far as ETFs go, steer clear of funds such as GLD and SLV. The reason for this is that they may not necessarily have physical metals to reinforce your shares. The creators of these funds are, worryingly, the very same banks that have huge naked short positions against silver, meaning the ETF strategy doesn’t make much sense at all. The only exception would be the CEF, which holds your gold or silver in unrestricted, allocated and audited secure vaults in Canada. They don’t lease your metals out and they stick to their guidelines: to always maintain at least 90% of assets in gold and silver bullion – although this is usually higher than 95% in practice.

One of our most recent additions to the Gold Stock Bull portfolio – Alexco Resources (AMEX: AXU or TSE: AXR) is usually reserved for premium members, but I will share some of the information here with you now.

Running a profitable dual-focus environmental consulting / reclamation / mine closure business model, Alexco also owns a project dealing with the highest quality silver districts in the world, known as Keno Hill. Producing over 217 millions ounces of silver with the average grades of 40 oz/ton silver, Keno Hill is ranked as the second largest historical silver producer in Canada. Despite a fantastic history, it is believed that only approximately 5% of the area has been explored. Low silver prices in 1989 forced the Keno Hill project into government receivership which caused environmental liabilities. The government realised the value of the Keno Hill project, bought it to clean it up and then became 100% owner in 2007.

Confidence has grown in the Alexco’s future production and the potential of their properties since Silver Wheaton has taken a stake in the company. Alexco has since provided $25.7 million to ensure continued development of the Bellekeno mine. They also started an aggressive exploration program in 2010 with a view to significantly increasing their resources. Their value could easily double in value over the next couple of years, and even if the Sterling silver price only increases modestly their value is set to increase greatly. Should silver reach the heights it’s expected to though, then Alexco could see a truly astronomical boom in share value and Sterling silver price.

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Silver Price Predictions for the First Quarter 2012

January 11th, 2012 · Analysis, Silver Price Predictions

My current silver price predictions in a recent spike in the price of silver because of the incredible levels that the futures market was selling at. Shortly after, the price shot up to $33 per troy ounce up from $28. Surprisingly, the price hike has not affected backwardation much with the price difference going up $1.17 at its maximum (markedly higher than it was on February 7th). Eventually, people will let go of expensive physical silver and the backwardation will halt.

It still has a long way to go, however. We do not expect the backwardation to stop until the price soars above $50 per troy ounce; perhaps even $52, its 1980 nominal high. It will probably pause as people sell the silver for what they take to be a small profit over the years. Some disgruntled anti-silver pundits who are now being proven wrong are trying to maintain that silver price backwardation is being caused by massive selling of future production by mining companies. The historically “anti-gold” editorial staff of the London Financial Times published an article that hinted of this naive idea.

Silver Price Predictions for The End of Q1

Silver Price Predictions for The End of Q1

Even though the article is mainly about silver price predictions and hedging, it poked anti-silver sentiment at the current backwardation. The article was made free for all to see, which is unusual as most articles at FT.com are restricted to subscribers or registered users. The article which purports to be a news story is in actuality a commentary authored by someone lacking an understanding of how markets work; relying on fallacies and half-truths.

Forward sales are ones in where, typically a bank in the precious metals market, goes into a contract to purchase future production of a commodity from a producer. This is not usually done in a regulated futures market but between two parties. The bank does however mitigate the risk of a fall in price in the period between purchase and delivery by taking short position in regulated futures exchanges such as COMEX. Clearly, to the extent to which the number of short positions will naturally increase at the futures exchanges, the prices may be affected.

For precious metals, you have to pay more for future delivery than for immediate delivery – they are in a contango. This is due to various reasons. To begin with, massive loans are offered to buyers of forward and future contracts; which is seldom the case for immediate buyers. This is because in the event that a silver long buyer just wants to speculate on the price of silver, it costs little to nothing for the bank to do that. These predictions will manifest their influence on all investment vehicles related to silver, like ETFs, options, futures and even collector items like Morgan silver dollar price.

Closure of contracts by long side futures market participants is usually done without demanding actual delivery and therefore the banks require a down payment, usually 6%, giving leverage of nearly 20 to 1 to any speculator in the silvers market. It is cheaper for banks to offer high leverage since not many short sellers hold as much physical silver as they are selling. This is not the case for physical buyers. For as long as these facts remain constant, banks are safe. Otherwise a change in these tendencies would destabilize the banking system.

An incidental reason for the contango is the fact that buyers for futures do not incur the cost of storage. The bank that takes a short position does not normally cover the cost of storage either and it usually owns nothing close to what they are theoretically selling. The bank will go into the market and buy the precious metal for the few people who take delivery of their futures contract therefore the silver price predictions increases significantly when a larger than average number of people takes delivery.

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Silver Streaming Influence On Today’s Silver Price

June 15th, 2011 · Silver Price Predictions, Today's Silver Price

One of the biggest players in the silver stock market and the biggest influence on today’s silver price, Silver Wheaton was established in 2004.  They are not a silver mining company.  They rose to the top by buying silver ‘streams’ from mines at extremely low prices and then selling at current market prices.

Share Prices of Silver Weaton Compared to the Today's Price of Silver

Share Prices of Silver Weaton Compared to the Today's Price of Silver

The company presently has fourteen long-term silver purchase contracts and two long-term precious metals purchase deals with thirteen mining partners around the world. These agreements cover sixteen operating mines and three development stage projects.

Silver Streaming Contracts Explained with Today's Silver Price

How Silver Streaming Works

Financials

Investors that were smart enough to get in early have seen a return on investment of tenfold in under a decade.  Management’s streaming strategy has helped the company maintain a healthy balance sheet with almost no debt and a 69% profit margin, even without much influence of today’s silver price.

Financial Highlights source Silver Wheaton

Silver Wheaton shows strong income performance

Historically Silver Wheaton's income shows strong growth

Management

The president and CEO Randy Smallwood launched his career with the company in 2007 as an executive vice president focusing efforts on growing the company through the evaluation and acquisition of silver stream offerings.  His plan paid off and in 2010 he was promoted to president.

The following year he was promoted again to chief executive officer.

Smallwood gained notoriety in 2005 when he was successful in the merger between Wheaton River/Goldcorp.  He then led a team that built the company into one of the most lucrative mining companies in the world.

Prior to joining the company Mr. Smallwood was employed at:

*    Homestake Mining Company

*    Teck Corp.
*    Westmin Resources

He holds a geological engineering degree from the University of British Columbia.

Production

Silver Wheaton is positioned to produce 28 million ounces of silver in 2011 and it’s projected to at least double its 2010 earnings.

The company predicts that it will produce nearly 43 million ounces of silver by 2015. If silver maintains today’s silver price, the business will more than triple 2010 earnings.

That is if the favorable long-term silver buying trends continue.  At current levels, ($50) Silver Wheaton will increase revenue more than five times.

Last year the company produced $423 million in sales.  And if commodity prices and silver maintains its current levels revenue will increase to $800 million.

Mines and Properties

Silver Wheaton is the largest silver streaming company in the world. They have fourteen long term silver purchase contracts and two long term precious metals agreements with nineteen collaborators worldwide.

The company’s contracts span sixteen operating mines and three developmental stage projects where they will purchase streams of silver at an estimated cost of nearly $4 per ounce.

The chart below shows the locations of Wheaton’s lease agreements around the world.

Silver Mines Currently Owned

Silver Mines owned by Silver Wheaton around the world

Streaming strategy

Silver Wheaton acquires by-products of silver production for an advance payment.  The company does not own or control any mines so it doesn’t require ongoing capital outlays and no ongoing explorations costs.  This strategy allows the company to maintain low, fixed operating costs.

The purchase contracts of future silver production are pre-set at $4 an ounce.  Wheaton assumes all risks so if silver prices go up the company’s profits rise as well.  It is this risk that gives the company access to a low-priced silver supply far bellow today’s silver price.

Risk

Wheaton is well positioned to handle any unforeseen adverse conditions because it has $428 million in cash and a positive cash flow as well as a strong line of credit.

The beauty of silver streaming is that the company doesn’t have the same risk as traditional mining companies such as tax increases or any other unforeseeable issues that could result in loss of revenue.  They are also well diversified in nineteen different regions throughout the world.

01. Peñasquito (Mexico)
02. Pascua-Lama (Chile/Argentina)
03. San Dimas (Mexico)
04. Yauliyacu (Peru)
05. Zinkgruvan (Sweden)
06. Minto (Canada)
07. Cozamin (Mexico)
08. Aljustrel (Portugal)
09. Campo Morado (Mexico)
10. Keno Hill Project (Canada)
11. Lagunas Norte Mine (Peru)
12. Los Filos (Mexico)
13. Mineral Park Mine (United States)
14. Navidad Project (Argentina)
15. Neves-Corvo Mine (Potugal)
16. Pierina Mine (Peru)
17. Rosemont (United States)
18. Stratoni (Greece)
19. Veladero Mine (Argentian)

Conclusion

Silver Wheaton should be included in any silver investor’s portfolio.  The company has an excellent management team with a proven track record.  They do not produce silver but buy silver streaming at low fixed costs selling it at today’s silver prices.

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How Low Can Silver Prices Go?

May 8th, 2011 · Analysis

Following the decline of silver to about $48 per ounce on May 1, 2011, we let our readers know that we expected another substantial silver price attack in the days following.

Various reasons led us to this conclusion among these the imminent opening of the Hong Kong Mercantile Exchange to be seen through by many of the same global participants who run the NYMEX. A ruthless attack was launched on precious metals on Monday, May 2nd.

Silver Price Collapse

Silver Price Sudden Fall from 10 year High

It was perhaps one of the worse attacks in the history of silver. As much as we were expecting it to happen, we had underestimated the extent of the viciousness. Heeding our own advice, when the precious metal’s price plummeted by about 18%, we took a small speculative long position, using the SIVR silver trust. Unfortunately, the price plunged through the base level we had selected and kept descending.

If we had realized just how ugly the situation of the silver short was we would have employed a different strategy; one where we would have lengthened our long term scope. However, we have not lost anything. Even so, we are not pleased about placing a little bet, small as it may be, and having it fail to catch the bottom of a dip. The short seller woes are becoming worse and will become increasing so in the weeks and months to come. We will explain further.

The so-called “clearing house risk committee” raises the performance bond deposit requirement every so often. Perhaps these clearing members are themselves short silver, or are scared to death that other clearing members will not pay up leaving them to deal with the mess. It is also possible that they are aiding in the assailing of their clientele. If so, these customers should drop them and find business elsewhere.

The official spokesperson for CME Group (owner of NYMEX) maintains that the performance bond increase is meant to mitigate “heightened risk” but if this were the case then these changes would only apply to short sellers and new long buyers who bought high in the range of lofty prices.

The older long buyers had made substantial profit and they posed no greater risk than they did when they bought at $18-25 per ounce. The exchange and its dealers, however, do not do business that way. The exchange committee members, made up of experts, had a different agenda; to force people out of their positions and manipulate silver prices.

The media’s claims that the silver bubble is bursting were ill advised as there had simply been an unwinding of a largely under-priced asset that had its priced buried over the years. Even so, the downturn offered opportunities. Highly leveraged and under-capitalized speculators have been forced out of their positions and therefore pushed the precious metal’s price up very fast.

The process of the price reaching the same levels and beyond would have been more gradual had the market been limited to cash buyers and well-capitalized investors.  The strategy used in the attack is very simple and regulators could have easily stopped it had they not been a part of it; except for a few genuine people like Commissioner Bart Chilton. A large segment of CFTC is however corrupt.

The attack is executed through a vast creation of temporary short positions lasting less than a day. It is, however, not as expensive as one would imagine. More than 10,000 short positions are briefly made, closed and recreated during the trading day. This is done every day; other than Friday. Access to Federal Reserve Loan windows ensure adequate funding for this.

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