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Thursday, October 4, 2012 - 13:00
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Thursday, October 4, 2012 - 13:00

Silver is Up 29% Since July -- Now What?

Thursday, October 04, 2012 1:00 PM

Silver is clearly out of its rut.

After steadily falling nearly 30% since its 52-week high in February, the price of silver has rebounded quickly during the past few weeks to a current price of $33 -- almost entirely because of Federal Reserve Chairman Ben Bernanke's announcement of a third round of quantitative easing.

For some investors, the QE3 decision to continuously pump money into circulation wasn't a surprise. Back in July, I urged the readers of my Forever Stocks investment advisory to buy silver while it was still trading below my recommended "Buy Under" price: "If the market feels like the Fed will start throwing money at the economy (via QE3) in an effort to spur growth, I can almost guarantee silver will see a short-term bounce." I even added shares of iShares Silver Trust ETF (NYSE: SLV), which tracks the price of physical silver, to my portfolio.

I bought silver in July for just under $26 per ounce, and now I'm up nearly 30%. But that doesn't mean I'm selling any time soon.

You see, I didn't buy silver as a short-term bet that the Fed was going to announce QE3. In fact, I'd rather not waste my time trying to predict the exact future of the economy.

Instead of relying on speculation, I like to keep things simple -- there's less room to screw something up. That's why I only invest in stocks that I can buy today and hold forever.

What makes silver such a slam-dunk?

Demand for it grows feverishly every year. From Sony and Apple, to Boeing, mega-manufacturers rely on it just to keep their doors open.

In fact, more of today's most useful devices use silver over any other commodity besides petroleum.

  • Sony, Samsung and dozens of other manufacturers use it in their flat-screen TVs, Blu-ray players, video game systems and sound systems.
  • Apple depends on it to generate annual revenues of $108 billion from its insanely popular iPad, iPhone and iPod product lines.
  • Manufacturing of solar panels, which incorporate highly reflective silver, is forecast to grow up to 396% in less than four years.

Worldwide demand for silver is only getting stronger. Since 1999, demand from electronics and battery manufacturers has increased 120%, feeding the American middle class' hunger for cell phones, televisions, laptops and batteries.

Now, imagine what kind of demand we might see from a middle class that's seven times larger than the U.S. middle class -- consumers hungry for the same cell phones, televisions and laptops we crave.

Yep, it's going to happen... And it won't be that long from now.

The United Nations and Goldman Sachs expect China's middle class to grow from 13.4 million people to 1.4 billion in the next 20 years -- four times the predicted size of the U.S. middle class. India's middle class is expected to grow more than 230% to 1 billion people, or three times larger than our own.

Fortunately for long-term investors, supply is not growing fast enough to keep up -- and there's no real industrial alternative to take up the slack.

Action to Take --> Sure, silver's 30% pop from QE-infinity has been nice. But don't lose sight of the larger, long-term picture. The fact is that the world uses more silver than it mines. That long-term trend should play out favorably over decades, not weeks or months.

This article originally appeared on InvestingAnswers.com:

Silver is Up 29% Since July -- Now What?

Sara Glakas does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC does not hold positions in any securities mentioned in this article.