Silver Mining ETF - 27 April 2010

If you though Gold Mining stocks were high-risk, wait 'til you see silver's new ETF...

"SILVER is now more attractive than it has been in decades," my colleague Porter Stansberry wrote to his subscribers recently, says Steve Sjuggerud in his Daily Wealth email.

"Assuming gold hits my target of $2000 an ounce and assuming the Gold Price is 16 times the price of silver," Porter continued, "then silver should be worth about $125 by the time the bull market in silver reaches its peak.

"Buying today at around $17 [now $18] could earn you better than a 600% profit."

If Porter is even half right, then a just-launched silver investment could be the safest way to make over 1,000% in silver. You see, before this month, investors didn't have a simple way to buy a basket of silver mining companies. But now there is – the Global X Silver Miners Fund (SIL).

This exchange-traded fund owns a basket of the world's purest plays on silver mining – 25 stocks in all, with a fairly significant geographic diversification. (Silver companies from Canada and Mexico each make up a larger percentage of the fund than US silver companies.)

If you think Gold Mining companies are speculative – then you ain't seen nuthin'. Silver mining companies are extremely volatile. To see what I mean, take a look at the performance of the underlying index of the Global X Silver Miners Fund, versus the Silver Price.

In 2008, when the price of silver fell in half, shares of silver mining companies lost 80% of their value.

Since bottoming in 2008, silver mining companies are up four-fold, as you can see in the chart. Silver Prices barely doubled in that time.

So, shares of silver mining companies are significantly more volatile than the price of silver. If Porter is right about the price of silver rising 600%, then silver mining companies could easily soar over 1,000%.

Porter believes silver could go significantly higher because:

1. A major currency crisis will push people to put their savings into precious metals rather than dollars; and
2. Silver is extremely cheap relative to gold, based on history.

You already heard the case for our exploding government debts leading to a crisis. But you might not know the case for why silver is cheap relative to gold. I'll let Porter tell it:

"During periods of monetary crisis, demand for silver as money pushes the gold-to-silver ratio heavily in silver's favor. For example, the ratio returned to its historic range (16 times) during World War I. It happened again in the early 1970s, when Nixon abandoned the Gold Standard. It also happened most famously in 1979-1980, when it seemed as if America was really entering a serious money crisis.

"As the Dollar loses its standing as the world's reserve currency, I expect the silver ratio to decline substantially and the price of silver to increase relative to gold...Buying Silver is the best hedge against a money crisis. In short, there is very little demand for silver as a commodity, compared to the demand for silver when it is used as money."

You could buy bags of silver coins from a dealer...but to build a serious position, you'd end up with a garage full of silver.

You could buy shares of the iShares Silver Trust (SLV), which tracks the price of silver. Or for leverage to the Silver Price, you could buy double-long and double-short silver funds from ProShares to double your risk. You could buy shares of a handful of silver mining companies – with the volatility and company-risk that entails. Or now, with more diversification than owning just a couple silver stocks, you have another option: The Global X Silver Miners Fund, which holds shares of 25 silver companies.

It's a volatile basket. But if Silver rises like Porter thinks, I believe you could make 1,000% here.

As Porter told his readers, "However you decide to own it, make sure you Buy Silver now."

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