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« Silver Wheaton Corporation Call Options Update 24 June 2010 | Main | Silver Wheaton Corporation Options Trade Up 10.38% »

The 2010 Silver Buying Guide

Coin Sales Casey 17 June 2010.jpg

By Jeff Clark, Senior Editor, Casey’s Gold & Resource Report

Silver has been sizzling and causing lots of buzz in the industry. Investors are excited.

Part of the hubbub is due to its current run. Since its February 8 low, silver has roared ahead 22.4% (through June 21) and has doubled from its November 2008 low.

This excitement has spilled over into greater investment demand – especially so for coins. The U.S. Mint sold more Silver Eagles in the first quarter of this year – just over nine million – than any prior quarter in its history. The Royal Canadian Mint produced 9.7 million silver maple leafs in 2009, also a record.

Take a look at the jump in U.S. Mint coin sales since 2007, on the chart above.

Silver bullion ETFs are growing, too, experiencing a five-fold increase in metal holdings since 2006.

There’s plenty we could talk about with silver, but our goal is to make money. So let’s focus on answering just two questions: Is today’s price expensive or cheap? And, what are the best silver coins, ETFs, and stocks to own? 

We have all the answers straight ahead, including lots of actionable info, so let’s jump right in...

Why Should I Buy Silver?

There are several reasons to own silver in addition to gold.

First, it’s cheaper! Known as the poor man’s gold, those with limited budgets will find it easier to purchase. You might hesitate plunking down $1,200 for an ounce of gold, but you can pick up 32 ounces of silver for half that amount.

Second, silver has wide industrial use and this component can help or hinder its price. As its consumption increases across a growing number of industries, this should help place a floor under demand. And because of its unique properties, new uses continue to be discovered.

Third, silver is money and has served this role more than any other material on earth, save gold. Due to its historical role, silver will always have monetary value and offer similar protection as gold to the ongoing global currency devaluations, and will definitely benefit from the inflation hurricane we see as inevitable.

Silver is more practical as a currency used for everyday purchases. When the time comes, you can sell the requisite number of silver coins to cover a specific need, as opposed to being forced to liquidate a high-dollar-value gold holding. Silver is perfect when smaller amounts of cash are required.

Fourth and last, silver could possibly outperform gold before this bull market is over. The market capitalization of silver (and silver stocks) is much smaller, making its price more susceptible to demand spikes than gold.

In the latter part of the 1970s precious metals bull market, gold gained over 700% – but silver soared over 1,400%. If you’ve got a bit of Gordon Gekko in you, we recommend investing a portion of your dollars in silver.

Caution - Hot!

Like all things, silver has its drawbacks, two in particular.

First, the price is volatile. Over the past 12 months, silver has seen gains of 53.8% and 22.9% and drops of 21.9% and 19.6%, all within a period of months or even weeks.

If you’re going to own silver, you must be prepared for big price gyrations. The best way to do that: buy it and forget about it. And...

►Make price volatility your friend. Big price swings present the opportunity to snag silver at a big discount. We give some guidance on prices below.

Second is the storage issue. As your pile grows, the advantage to storing gold will become self-evident. At $1,200 gold and $18.50 silver, $10,000 will get you eight gold eagles that will fit nicely in the credit card slots of your wallet; however, it will buy 540 silver eagles, weigh nearly 34 pounds, and fill a small bank safe deposit box.

►How to store physical silver. There are several ways to solve the storage dilemma, even if you plan to buy like the Hunt brothers.

1.Spread your holdings around. Not only is it wise to avoid keeping all your physical silver in one place, diversifying your storage arrangements allows you to buy more. Hide some at home in several locations (no cookie jars, though), and obviously tell only one trusted person. Store some in a bank safe deposit box and use more than one bank as your holdings grow.

2.Buy bars. Silver bars take up less space than a pile of coins of the same weight. We wouldn’t start out with nor have all our holdings in bars, because you want the advantage coins offer. But the larger your holdings, the easier it will be to store some of it in bar form.

3.Use pool accounts and unallocated storage. With a pool or unallocated account, you’re essentially getting free storage no matter how big your stash. That’s hard to beat. You’ll pay fabrication and delivery charges if/when you convert your holdings and take delivery, but in the meantime, you save on storage costs. Great value for the large holder.

4.Private storage. Store your silver with a private vaulting company. The advantage is that it’s outside the banking system; the disadvantage is that it’s usually expensive, though it can be cost effective for large holdings. Do your own due diligence if you go this route because we can’t vouch for any facility, but you could start by checking out Keep in mind that using a vaulting facility beyond a reasonable driving distance will mean added shipping/insurance costs and restrict quick access.

Is Now a Good Time to Buy?

With the gains we’ve seen in silver, would we buy right now?

Let’s first look at the big picture. The following chart shows how far silver is below its inflation-adjusted peak reached in 1980

Silver in Todays dollars casey 17 June 2010.jpg
Another clue some investors watch is the gold/silver ratio (gold price divided by silver price) shown below.
Gold Silver Ratio casey 17 June 2010.jpg
Since our current bull market in precious metals began in 2001, the ratio, while fluctuating wildly, has never gone below 45. And yet look where it went during the precious metals peak in 1980: it bottomed at 17. Even though gold was soaring at the time, silver outran it.

The ratio might show relative strength between gold and silver, but it’s not a good buying indicator. A falling ratio could mean silver is rising faster than gold, like it is currently, or it could mean silver is falling slower. As a result, we’d use the ratio to determine silver’s upside potential but not necessarily when to place an order.

These big-picture signals tell us silver is undervalued and, at the moment, a better bargain than gold. And given the currency crisis we’re convinced is in the cards, we wouldn’t want to be caught without any. If you have a long-term mindset, silver is a buy today.

Would we wait for a better price?

If you do not own any, and plan on holding what you buy until a mania develops, then we wouldn’t wait. The risk of buying silver at current prices is lower than owning none at all.

If you do own some but want to add to your holdings, we’d probably wait for a drop in price, in part because silver could more easily fall when the economy is found to be more fragile than what many believe. And with industrial uses comprising approximately half of silver’s demand, it would be more susceptible to sell-offs than gold if our research is correct about global economies. 

Further, summer usually brings pullbacks in prices, and this can be especially true for silver stocks. This is the tendency, though we can’t be sure if this summer will follow past trends. Still, our best guess is to anticipate another leg down this year. If you already own silver, we’d look for a correction to add to your holdings.

In our opinion, owning no silver in this bull market would be a mistake. And your first (and biggest) investment in silver should be in a physical form.

How much physical silver should you have? There’s no right answer and one size will not fit all. But we do recommend holding more gold than silver. Our suggestion for your precious metal holdings is roughly 80% gold and 20% silver.

Like gold, silver comes in different forms. We’d start with the more popular one-ounce coins and then branch out into other types as your holdings grow.
[The above is an excerpt from the May issue of Casey’s Gold and Resource Report. Find out our top recommended dealers, including special pricing, along with Jeff Clark’s picks for the “best silver ETF” and the “two best silver stocks in the world.” And our June issue is our annual Summer Buying Guide. You can check it all out risk-free, for just $39/year, with a 3-month, 100% money-back guarantee. Get it right here.]

Have a good one.

Got a comment then please add it to this article, all opinions are welcome and very much appreciated by both our readership and the team here.

The latest trade from our options team was slightly more sophisticated in that we shorted a PUT as follows:

On Friday 7th May our premium options trading service OPTIONTRADER opened a speculative short term trade on GLD Puts, signalling to short sell the $105 May-10 Puts series at $0.09.

On Tuesday the 11th May we bought back the puts for just $0.05, making a 44.44% profit in just 4 days.

Accumulated Profits from Investing $1000 in each OPTIONTRADE signal 14 May 2010.jpg

Recently our premium options trading service OPTIONTRADER has been putting in a great performance, the last 16 trades with an average gain of 42.73% per trade, in an average of just under 38 days per trade. Click here to sign up or find out more. have been rather fortunate to close both the $15.00 and the $16.00 options trade on Silver Wheaton Corporation, with both returning a little over 100% profit.

To stay updated on our market commentary, which gold stocks we are buying and why, please subscribe to The Gold Prices Newsletter, completely FREE of charge. Simply click here and enter your email address. (Winners of the GoldDrivers Stock Picking Competition 2007)

For those readers who are also interested in the silver bull market that is currently unfolding, you may want to subscribe to our Free Silver Prices Newsletter.

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Reader Comments (3)

Don't you guys know silver is going to $2.50?

Ha. Kidding. Couldn't help myself. The runes say so apparently.

I don't consult runes.

Look...Silver is a buy, even though it's risen back to a more reasonable level after getting morganed in the fall 0f 08. And it's still a buy even knowing the price could easily get cut in half again by another credit/liquidity crisis / JP Morgan short sell raid ... before it goes waaaaaaay up. I hate to lose, even temporarily, but the amount you might lose on paper in the interim will probably be almost meaningless from a long term perspective imo.

I'm expecting silver to be at $100 an ounce, if not in the hundreds, as outlandish as that sounds today...with a shorter term peak somewhere around $30, where I'll sell enough to bring my cost basis to zero and book a small profit.

I expect that $100 price to be reached in clownbucks within 2-10 years. Yeah, I could be deluding myself and wrong on direction, amplitude, and timing or any combination thereof, but that's how I see it, for what it's worth. With the paper money regime crumbling, it's time to think parabolic.

I tell my investor advisees to accumulate on dips for what I call "money-insurance" and as a long term scarce asset play. Time and tide are on our side. We've all been in with a substantial core position for quite a while.

Average in over the next few months or couple or years if you're worried about top ticking the market. But the market could easily simply run away. My approach is to be long and stay strong. Ignore the chatter of the clueless and the noise on the tape and simply wait for the mania.

For Traders: Like the K's said, buy low, sell high. It's not like the silver market isn't manic depresssive and doesn't give you every chance to play the swings. I bought a boatload of SLW at $3 and change in the fall of 08 and added more junk at $11ish. How fear driven and stupid was that price?

I'm in at $1.20, $4.50, $7, and $11. And believe me, there were those who said that paying any premium at all for silver coin was folly back around 1970 when you could get it for a lousy 20% over face. I was literally a kid then.

Oh, and I'll buy all anyone wants to sell at $2.50.

Sorry for running on.

June 17, 2010 | Unregistered Commenterfallingman

nice one fallingman, appreciated.

Question: When do you see silver hitting $30.00?

timing is important too!

June 17, 2010 | Unregistered CommenterSilver Prices

Two answers:

1)Who knows really. I'd just be guessing.

2) My sense is that $30 is a reachable target on the next clear breakout move to new highs, above the old $21 high for this cycle. When will that happen? It depends.

If we get credit revulsion part II, it'll be awhile and we may have to live with some paper losses first if there's another liquidity crisis.

If they manage to flood enough money into the system to overcome all the deflationary forces, it could happen pretty soon. Especially if they figure out a way to get cash directly to the public, bypassing the banks.

Consider, though, that we're at a key juncture. The stimulus is largely spent/wasted to no real positive effect, the homebuying credit has ended, the Fed is done buying MBS's. Unemployment is gonna get worse.

They've thrown everything they have at the crisis to forestall the inevitable clearout and jumpstart the economy / juice the market. And what did they get? Precious little. A brief reprieve. And I think they may well panic when they see how fragile things really are absent the artificial propping. Some of these clowns may actually believe the Keynesian claptrap.

They may decide to inflate for all they're worth sooner rather than later, rather than risk an all out collapse or endure a Japanese style zombie economy. But my best guess is we get a "deflationary-style" buckling first. The debt liquidation forces are just too strong.

Either way, it's only a matter of time, imo, before they monetize with abandon. And that's when we'll go the first whiff of that. Yeah, that would screw the creditors / bankers and the bankers run the show, but if it's a case of inflate or risk killing the host, the parasites may allow a debt clearing inflation.

Darn hard to figure. But with sovereign debt and all major currencies looking like dead men walking, it makes sense to just bank in some real money, sit back, and wait.

First case, maybe 2 years. Second case, maybe this fall/winter in the seasonally strong tome. But that's a rank guess and I'm usually right but early.

But it's funny how things work. The journey to the inevitable seems to take forever and then all at once, when you get tired of waiting and thinking you must have missed something in your analysis, the end comes just like that. Think the Soviet Union. We have a ways to go, but time is compressing and there's no way out of this mess that doesn't involve serious dislocations and the death of the dollar.

Again, sorry for going on.

June 17, 2010 | Unregistered Commenterfallingman

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