The recent major selloffs in silver have given investors an excellent chance to accumulate a long-term position in physical holdings and silver companies. As the price has come down, I have been recommending for some time to dollar cost average and/or pyramid down into silver and silver equities. So what is the path to a surge in silver prices?
Precious metal demand
There was a significant shortage of both American Silver Eagles from the U.S. Mint as well as junk silver available (that is, pre-1965 U.S. dimes, quarters, and half dollars) in 2013 as a result of record high demand. Further, silver ETFs have continued buying silver bullion at a record pace. Thus, demand for the metal is there from physical investors and has helped keep silver above the $18 mark.
When the economy rebounds, there will be a spike in demand in many areas. The demand will not be just in coin and bullion form but also in jewelry, silverware, and dentistry. On the technology front, silver is one of the most conductive metals out there, and thus is utilized in photography, electronic devices, optics, medical devices/tools, and most recently in nanotechnology.
Gold-to-silver price ratio
At the time of this writing, silver is priced around $19.53 per ounce, approximately 70 percent off its recent highs set in April 2011. Gold is currently priced at about $1,301 per ounce. That represents a 66-to-1 gold-to-silver price ratio, whereas the historical ratio is 16-to-1. The respective prices of gold and silver have not approached this historical ratio in many years, and I believe a reversion is long overdue.
In my opinion, the best way to invest in silver is through physical bullion or coins. There are dealers in most cities and merchants on the Internet where you can buy silver bullion bars and/or coins. I not only consider physical silver a wise investment given government stimulus, but I also consider it to be a form of insurance in the case of a total breakdown of the fiat currencies and modern financial systems we have in the world today.
If you decide to invest in physical silver assets, do so by only buying from a reputable dealer. The only downside from Internet purchases are high shipping and insurance costs, as well as the possibility of a required minimum purchase. Whenever possible, buy locally to avoid excessive shipping and handling fees.
Source American Hard Assets
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