commodities silver

William Jennings Bryan’s “Cross of Gold" speech on July 9, 1896 electrified the Democratic National Convention giving the 36 year old the inside track on capturing the presidential nomination. The speech addressed the issue of monetary policy and the debate over backing the dollar with gold and silver rather than just gold which was deemed overly restrictive and unfair to working people and farmers. It ended with this memorable sentence:

“You shall not press down upon the brow of labor this crown of thorns; you shall not crucify mankind upon a cross of gold.”

Gold ETFs have attracted huge inflows by investors seeking a hedge on inflation, protection against global fiscal imbalances, a weak dollar and the search for positions that hopefully will not be closely correlated to global equities.

It’s time to take a closer look at silver and the silver ETF which has come back sharply to a price under its launch price earlier this year.

Silver has long been the neglected orphan of the precious metals markets. Investor sentiment towards silver has been depressed by the perception the demand for silver in film and paper for photo imaging falling sharply due to the rise of digital technology. But photography only accounts for about 8% of total demand for silver.

Actually, silver has some of the best-looking supply and demand fundamentals in the metals markets. The demand for silver is rising fast, due to both increasing demand for the raw material for the manufacture of jewelry and silverware, and because it has so many industrial applications. It is, for example, one of the best electrical conductors of all the metals. “Every time a homeowner turns on a microwave oven, dishwasher, clothes washer or television set, the action activates a switch with silver contacts”, says the Silver Institute.

However, the real case for investing in silver lies on the supply side because silver really is quite rare. There are only 23 pure silver mines operating around the world and most of the silver supply comes as a by-product from mines mainly engaged in digging for lead, zinc and copper. Furthermore, silver production was flat this year and is expected to be flat again next year.

Mined silver has been less than demand every single year for the last 15 years but this hasn’t been a huge problem because the world has been able to fill the gap from inventories and official stockpiles. However, today the US government stockpile is all but gone and sales from other official sources such as China, Russia and India appear to be declining too. According to research consultant CPM, in 1990 there were around 2.2 billion ounces of silver held in above-ground stocks. Today, there are probably only about 300 million. That’s a 50-year low.

The SilverStockReport.com notes that while about 95% of the gold ever mined still exists in above-ground refined form, 95% of the silver ever mined has been consumed by electronics and jewelry. Aside from industrial demand/supply imbalances, silver is once again being viewed by many as a pure metals investing play.

When the Silver ETF (SLV) was launched in on April 21st at a price of $121, I recommended to clients to sit on the sidelines because of the rapid run up in silver price during the SEC registration process. Since then, the silver ETF price has fallen from a high of $152 in early May back to $119 while accumulating $1.2 billion of silver.

It is also interesting to look at the point and figure chart for (SLV) complements of Chartwell Advisor’s partner Don Smith, President of go2mypv.com. SLV Holding: Date: Open: High: Low: Close: Volume:

Don’s view is that SLV broke through a triple bottom in May but by the end of June took a nice turn. If it reaches level of $128 it will break a second consecutive double top which is a buy signal. With an annual fee of only 0.50%, the silver ETF is the cleanest and easiest way to gain some exposure to silver. Another option is to invest in one or more of the largest silver miners but they are for the most part located in somewhat unstable countries such as Bolivia and Peru.

The top six silver miners have a combined market cap of just $8 billion and do not seem particularly cheap to me. The largest silver miner in the world is BHP Billiton (BHP) which I have liked for some tome and now has a market cap larger than Coca-Cola. BHP is also the largest position in the Australian ETF (EWA).

William Jennings Bryan’s “Cross of Gold” speech is a classic and investors can benefit from his captivating message 110 year later. Put the silver ETF in your core portfolio with a trailing stop loss of 10%.

Carl T. Delfeld President & Publisher Chartwell Partners http://www.chartwelladvisor.com/

Carl has over twenty years of experience in the global investment business with a strong background in Asia.

• Author of global investor primer "The New Global Investor"

• President of the global investment advisory firm Chartwell Partners

• Publisher of the Chartwell Advisor ETF Report and Asia-Pacific Growth

• Columnist on global investing with Forbes Asia: "Global Gambits"

• Former U.S. Representative to the Executive Board of Asian Development Bank

• Chairman of the global economic strategy think tank ChartwellAmerica

• Asian specialist with the U.S. Joint Economic Committee and the U.S. Treasury

• Former member of the U.S. Asia Pacific Economic Cooperation Committee

• Former investment executive with Robert Baird & Company and UBS

• Graduate of the Fletcher School of Law & Diplomacy with economics scholarship from U.S.-Japan Friendship Commission

• Exchange student at Sophia University, Japanese Ministry of Education Fellow at Keio University

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Send mail to carlosdepaula@mindspring.com with questions or comments about this web site. Last modified: November 30, 2006

Send mail to carlosdepaula@mindspring.com with questions or comments about this web site.
Last modified: November 30, 2006