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Outside the Box
Jan. 14, 2011, 12:01 a.m. EST
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Contrarian forecast for 2011
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Groupon IPO being pushed by Wall Street
By Jeff Reeves
ROCKVILLE, Md. (MarketWatch) "” There are several reasons to love gold right now. From the twin specters of a weak dollar and commodity inflation, to the recent all-time highs north of $1,430 an ounce, to returns that doubled the broader market in 2010.
Yet investors who focus on gold and ignore silver could be missing an even better bet. Demand and performance numbers show that silver is beating gold handily right now and has been for a while. What's more, a look at the uses and possible supply bottlenecks of silver shows that this metal could have an upside gold may not enjoy in the new year.
While both gold and silver have rolled back recently "” a 5% decline for silver and a 3% decline for gold since Dec. 31 "” there's no doubt many investors are considering the drawback little more than a pause before the commodities skyrocket once more.
Don't be fooled by gold's glitter "”- here are five reasons silver may be a better play for your portfolio "” and several investments to capitalize on the metal's run.
Silver has lapped gold's gains better than three times over the past year, with appreciation of about 79% compared with 24% for gold. Silver also has better long-term performance, with three times gold's run in the past 20 years. Specifically, silver has posted gains of about 637% since early 2009 compared with 255% for gold in the same period.
Remember, past performance is no guarantee of future results. But a look at just about any time frame over the past few decades shows that silver has outperformed gold. Another annual gain of nearly 79% may be a bit unrealistic, but if you think precious metals are on the rise, you should bank on silver instead of gold.
According to historic estimates, about a century ago there were about 12 billion ounces of unmined silver. In 1990, commodities research firm CPM Group pegged that figure at 2.2 billion ounces. But today, that figure has fallen to less than 1 billion ounces in above ground refined silver "” a number that's shrinking every day. Recycling is common for silver, but the dwindling supply of metal in the ground is creating a bottleneck. Read about six mining stocks to sell immediately on InvestorPlace.
What's more, a shift in who owns silver has contributed to a bottleneck. Stockpiles of silver were for decades largely part of Commodity Exchange warehouse inventories. COMEX inventories were mostly commercial holdings, with a small portion being held for investment purposes "” peaking at around 280 million ounces in the early 1990s, according to a report by Ted Butler.
Then a funny thing happened "” after the introduction of silver Exchange-Traded Funds, there was a profound shift in the location and structure of world visible silver inventories. Rather than being a commercial stockpile, investment holdings have overshadowed conventional-use silver by 4 to 1.
Given the long-term nature of ETF investment holdings and the current silver boom, it's highly unlikely this new floor for silver prices will go anywhere. That skews the chart upward for silver. Read about eight dividend stocks likely to boost yields on InvestorPlace.
Not to get all scientific on you, but silver is an amazing element. The substance has the highest electrical conductivity of all metals, even copper. That means it's useful in electronics, from high-end speaker wire to computer keyboards to circuit boards. Silver oxide and silver-zinc batteries are also used in many applications due to their long life and impressive energy-to-weight ratio. In short, you can use silver "” and while gold is also highly conductive and used in a limited manner in industrial and electronic applications, it is cost-prohibitive and in many ways inferior to the conductivity silver provides.
The daily deal Internet company just received private funding of nearly $1 billion so why is it reportedly looking at an IPO so soon?
12:06 p.m. Today12:06 p.m. Jan. 14, 2011
"RT @RJPIII: #Retirement products: rising costs, fewer providers http://on.mktw.net/fCmJBb" 2:22 p.m. EST, Jan. 14, 2011 from MarketWatch
"Five reasons #silver glitters more than #gold http://bit.ly/hXF8pL" 1:54 p.m. EST, Jan. 14, 2011 from MarketWatch
"Consumer sentiment dips in January http://bit.ly/e9ofuZ" 1:10 p.m. EST, Jan. 14, 2011 from MarketWatch
"RT @tpoletti: AMD chief hunt: the search is on http://on.mktw.net/gmE1Yz" 12:36 p.m. EST, Jan. 14, 2011 from MarketWatch
"AIG lays out plan to repay U.S. government http://on.mktw.net/e0ISEZ" 12:32 p.m. EST, Jan. 14, 2011 from MarketWatch
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