NEW YORK (Scrap Monster): Silver remains very undervalued on a historical basis and is undervalued even against gold. While gold has begun to receive some interest from a small minority of retail investors, silver remains the preserve of relatively few contrarian investors and the media and financial press rarely, if ever, covers silver. And yet silver is quite likely in the intermediate stage of a bull market that will rival or surpass that of the 1970s.
A year ago, silver price soared as high as $50 an ounce before experiencing a brief correction that took it back down to $30/oz. Still silver is looking extremely bullish than gold for a number of reasons and many traders are expecting prices to double or even tripe in 2012.
Why Silver looks Bullish
-- The lead and zinc mines contribute to silver supply since the white metal is often a by-product of these mines. And with investment in lead and zinc mines diminishing, supplies will also dwindle. Add in the increasing demand from industry and investment sectors, one can see a clear supply issue developing in the coming future.
--Firstly the gold/silver ratio. This is one of the best indicators of how far silver prices can move. If you average out the price ratio between gold and silver throughout history, you land on a single magical proportion: 16 to 1. That implies that at $1600 per ounce gold, silver should be $100 per ounce. Gold is currently trading at $1640 an ounce and silver is at $30, which projects the ratio is now 54. Silver is massively undervalued right now and that gives it much more upside potential than gold.
-A large portion of silver demand - 80% - comes from fabrication, which is expected to rise about 3% to 5% this year to roughly 900 million ounces.
- China's manufacturing expansion and an increased electronics industry demand.
--Current monetary policy increasing investors' appetite for silver and triggering a subsequent price rise.
--Emergence of Shanghai Futures Exchange: - Chinese investors now have an opportunity to trade silver from home, which will spur rising prices. Investors have shown great interest since trading began. Trading silver futures was previously less convenient for investors in China. Their only options were using international markets or trading indirectly via local Chinese markets. There has been an absence of a means of trading in silver in China. The market will be bigger and more liquid with the advent of these futures contracts.
--Manipulation in the silver market is currently depressing prices - but it won't for long. The manipulators will stop and silver prices will then increase in an open market. The silver manipulation has created cheaper prices than usual, making silver a good buy.
--Future mining of this metal is limited, because there are fewer chances of the metal being found deep underground and also because it is uneconomical to mine it. Because of this more silver is used annually than is mined.
--Demand for silver in technology and industries is only going to increase and this will cause an increase in price. There is no substitute for silver in almost all products that it is used in.
--Silver cannot be confiscated by the US government as gold bullion can.
What kind of silver should you buy
If you are buying silver for investment purposes, you should avoid silver jewelry because you will lose money due to making charges. Instead you will find better value for the money that you invest if you purchase
--Government minted bullion coins.
- Junk silver coins, so called because they have no collectible value, are usually 90 percent silver and less liable to be damaged.
-Bullion bars, which are 99 percent pure silver.
- Silver rounds, which are also 99 percent pure silver.
--So you can safely invest and buy silver, but from a reputable source or silver dealer.
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