Dear CrushTheStreet.com Member,
With the severe bear market in the resource sector taking silver below $19 per ounce last week and this silver bear market getting very old in age, I think this summer is a great opportunity to start taking some large positions in the silver market.
The Silver Supply and Demand Deficit
For decades, the world has produced less silver than it has consumed. This supply deficit has always been met with scrap silver and government stock piles. However, both these two resources for supply have been shrinking. Government stock piles accounted for about 10% of the supply a decade ago; in 2012, it dwindled down to 3%, and last year it had fallen all the way down to just 1%. According to the USGS, U.S. government silver inventory is ZERO!
Silver scrap last year fell by 24%, this was the largest drop on record.
Here are the raw numbers for total demand vs. new mine supply for 2013.
Total mine production (supply) was 819 million ounces, total demand was 1.1 billion ounces. Now supply actually did go up from silver mines, however, like all mines, ore grades are falling, making the metal itself more costly to produce.
All Mines Peak
For silver, if you look at the 15 leading silver mines, 7 of them produced less silver in 2013 than they did in 2012. The #1 producing silver mine in the world, owned by BHP Billiton, produced 32.23 million ounces in 2012 and 29.09 million ounces in 2013.
Same thing for the #2 mine owned by Fresnillo, 26.38 million ounces in 2012 and 22.76 million ounces in 2013. Looking at Nevada, which is literally called the “Silver State,” produced 25 million ounces in 1997, and last year only produced 7.4 million ounces!
Demand as a whole grew 13% last year, mostly from investment silver. Silver uses though are rising dramatically, one area we have covered in the past is solar energy and its use of silver. In 1999, silver’s use in solar panels wasn’t even reportable, by 2015, we are looking at a solid 100 million ounces going to just this industry. China alone consumed 35 million ounces of silver for solar demand, compare that to 2005 when China used less than a million ounces.
How to Profit
As with all of our ideas, I wouldn’t suggest anything that I myself wouldn’t be willing to do for my own family. So here are my own top 3 ways to profit from silver’s inevitable rise.
#1 I like to buy physical silver that is stored safely and securely. Lately, my family has been using a company called SilverSaver. They make accumulation easy, automatic if you choose, and you can sell your silver at the click of a mouse. Or if you want you can request delivery. My family and I are also getting a Lifetime loyalty pricing, so the more we buy, the lower our fee is for life! Since you are part of the CrushTheStreet.com family, here is a special link to SilverSaver to help get you started.
Buy Physical Silver up to $26
#2 Buying shares of First Majestic Silver (AG). First Majestic is the purest silver producer in the world with a first class management team. It also happens to be the largest holding in the mining sector for Mr. Silver himself… Eric Sprott of Sprott Asset Management. The company is a multi-asset producer, with 5 producing silver mines and two advanced stage projects to boot. Currently they are projected to produce about 13 million ounces of silver for 2014, with a goal in the next few years to achieve 20 million. With all of their projects in Mexico, First Majestic is in the friendliest mining jurisdiction in the world.
Buy AG up to $12
#3 Buying shares of Silver Wheaton (SLW). Silver Wheaton has become like the mafia in the silver mining space, providing much needed capital to the near term or already producing silver miners. In exchange for an upfront payment to a starved junior mining company, Silver Wheaton has the right to purchase, at a low fixed cost, all or a portion of the silver from 19 high-quality operating mines. Some of these pre-determined agreements have this company buying their silver for around $5 per ounce! They have ZERO exploration costs, minimal on-going costs, and a fixed operation with a stake in two of the top 5 silver deposits worldwide. This is a pure play on silver, if silver rises, I expect SLW to dramatically outperform the physical metal.
Buy SLW up to $30
Remember, inevitability doesn’t equal imminent. The set up for silver’s rise looks to be inevitable and likely in the near term, but there are no guarantees.
Be mindful of your position size, never having more than 5% in any one investment and 20% in any one sector.
Chief Investment Strategist of CrushTheStreet.com