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Silver Speculation



July 27, 2011 – Comments (17) | RELATED TICKERS: SLV , SLW , GPL

Hi there.

Recently I E-mailed investment advisor Terry Savage to get her opinion on Silver.

Miss Savage is someone who's opinion I greatly respect, she was calling for Gold as a buy at $200 pr OZ. She also called the credit crisis before the proverbial Sh!t hit the fan. (That was one of the factors that led me to unleash my inner contrarion and buy during the chaos).

Basically I stated that since I don't have large sums to invest that Gold was out of my reach. A few ounces would be a huge proportion of my whole portfolio.

With some physical Silver and junior miners I can keep the ratio to about %10.

Here's the reply-

That's why they call silver the "poor man's gold"!!   It's more volatile, more subject to economic cycles (because of its industrial use) -- but if you're buyiing as a hedge against inflation, then industrial usage won't be a consideration on the upside -- Use stops, be careful -- this is speculation, not investing.  Terry

I've always thought of the industrial usage as a plus, but I can see her point and have been thinking about this deeply (Yeah! my head hurts ;) Just putting this out there for a Fool discussion.

17 Comments – Post Your Own

#1) On July 27, 2011 at 8:26 PM, TMFAleph1 (91.92) wrote:

this is speculation, not investing.

The five most important words in her reply.

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#2) On July 27, 2011 at 10:15 PM, dragonLZ (91.79) wrote:

Thanks HCG. :)

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#3) On July 27, 2011 at 10:26 PM, Frankydontfailme (28.83) wrote:

Absolutely. Industrial use is a double-edged sword. This is why I believe gold to be the safer bet. That being said, it's possible for the industrial demand to de-couple from the investing demand. If you watch the day to day action closely you will see sometimes silver goes up with industrial metals and a risk-on trade and sometimes it goes up as a safe-haven via risk-off trade. I have no idea how silver will react under a hyperdeflationary scenario (whether safe-have or industrial demand would win out) and anyone who tells you he knows for sure is full of it. 2008's drop is not necessarily predictive. 

Overall risk/reward though, silver has a lot of upside. I believe it could easily take out 25:1 on the gold silver ratio. 

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#4) On July 27, 2011 at 10:33 PM, Jimmy2008 (< 20) wrote:

she was calling for Gold as a buy at $200 pr OZ

When was gold priced at $200 per oz? In the 70s? I thought that the low for the past 30 years had been around $250 in 2001.

She seems to be an idiot  to me or tries to mislead you. I wouldn't listen to her.She wouldn't have liked you to buy gold. If you do buy gold, she will loose some of your business and her bonus. Most financial advisors want us to be in paper so that they can trade and make more commissions.

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#5) On July 27, 2011 at 10:56 PM, HarryCaraysGhost (88.06) wrote:

Hey Jimmy,

I did'nt look too hard but this was what I was able to find-

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#6) On July 27, 2011 at 11:30 PM, rfaramir (28.65) wrote:

All looking to the future and making guesses about it and making plans based on our guesses is speculation. Some is just more dangerous than others.

She's right in the sense that buying PMs is not investing in a productive enterprise (stocks) or a bond lent to such. PM mining stocks are, though. Treat gold and silver as an alternative to holding cash.

If you think the stock market is "too high" and want to sell, but believe the dollar is "too likely to be further debased", so you don't want to hold too much of the resulting cash, then PMs are probably for you.

I also think you're right about industrial use of silver. Electronic usage in particular, is not only climbing, but is used in such small quantities that it is not price-sensitive. They wouldn't switch to a different material if the price went up 10X. Also, this usage is not like jewelry or dentistry where the silver (or gold) is highly recoverable. Most gold ever mined is still available above ground (at some price). Much silver is not, especially that used in modern industry.

Note that my "If," "think," "believe," and "want" explicitly makes this NOT personalized investment advice. It's a combination that I believe makes sense in general.

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#7) On July 28, 2011 at 8:24 AM, TMFAleph1 (91.92) wrote:

She does sound unusually wise for an investment advisor.

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#8) On July 28, 2011 at 5:33 PM, chk999 (99.96) wrote:

Hey Jimmy, how about some stock picks?

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#9) On July 28, 2011 at 7:55 PM, HarryCaraysGhost (88.06) wrote:

Alex I think that was a poor choice of wording on my part, Obviously I'm not an author, but she is-

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#10) On July 31, 2011 at 12:37 AM, Starfirenv (< 20) wrote:

Karen says: The silver breakout is on with amazing new highs going over $50 in August.

Hey, she's been right many times and I agree, altho not because of the position of Uranus.

Echo #6-   Best.

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#11) On July 31, 2011 at 9:51 AM, binve (< 20) wrote:

Hey HCG,

Here is my reponse based on your request.

First, I own Silver. Both physical and Silver Miners. The proportion of my Silver holdings relative to my Gold holdings is small.

It is precisely becuase Silver is speculative, possibly one of the most speculative assets around. Industrial demand, limited above ground stores, straddles the line between commodity and monetary metal, etc.

Like with Gold, I don't buy the Silver 'inflation hedge' argument. Like I said before, I think Gold is primarily an 'instability hedge'. Based on how unstable Silver is, it does not even come close to filling that role.

So I like it as a more speculative little brother to Gold, and I have my portfolio allocation reflect this stance..


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#12) On August 01, 2011 at 6:43 AM, daninkeller (< 20) wrote:

Sometimes it's hard to tell an investment from speculation..  I agree that because of silver's volatility, you should be careful, and hedged.  I price averaged into a SLW position at 36,34,and 32, and have a basis of 33.  When the market took SLW to 39, I sold Dec 42 calls, and bought Dec 38 puts for a net cost of 20 cents each.  With this option spread, I'll do fine if SLW drops to 38 or below or if SLW rises to 42 or above....My potential gains over 5 mo. on 2000 shares are either $10,000 (18%)at the SLW low of 38 to $18,000 (27%)at the SLW high of 42. 

If SLW is between 38 and 42 by December, I'll stay long and call it an investment. So, a lot less speculative that some "safe" Fool stocks I've bought and lost 20% on.  While options strategies are not easy, they can work to make  a trade like SLW , hopefully, less speculative than just a bet.

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#13) On August 01, 2011 at 4:06 PM, rfaramir (28.65) wrote:

So, binve, if gold is not an inflation hedge but only an instability hedge, then when the debt limit is raised, gold will sell off, right? Even though every plan proposed results in huge increases in the money supply (inflation).

While some will get out of the gold (and silver) market because the uncertainty is over, I believe even more will see that inflation is now certain and buy more gold (and silver).

I wish they'd just stop spending, but at least they're furnishing us with near-scientific platform for economic research.

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#14) On August 01, 2011 at 8:43 PM, Starfirenv (< 20) wrote:

Hey John, did you get an invite?  I'm rooting for you to make the playoffs this year!  Best.

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#15) On August 02, 2011 at 7:19 PM, HarryCaraysGhost (88.06) wrote:

Not yet, I'll check. Heres hoping I do I already "invested" $7.99 on an FF magazine.

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#16) On August 02, 2011 at 7:37 PM, HarryCaraysGhost (88.06) wrote:

Hey Mark, yeah I got it stupid yahoooooo sent it to spam, I'll have to check my settings.

Locked and loaded and ready to go, should be another fun season looking foward to it.

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#17) On August 03, 2011 at 8:48 PM, HarryCaraysGhost (88.06) wrote:

Thanks to all who replied excluding Jimmy (Dude, no need to be a jerk).

As always I try to absorb any information I can and and act after a period of quiet contemplation (yes meditation is involved).

What I came up with is BRD pretty close to when I picked it on Caps.

I'm not happy about this, I'd much rather be a strictly dividend investor...

But the Gov keeps twisting my arm.

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