2016 silver price predictions: Are we headed up or down?

Let’s take a look at the latest silver price predictions for 2016 as part of our Three-up and Three-down series. We’ll present three bullish arguments for silver prices and three bearish arguments as well. Then, you decide where you think silver’s headed next year.

The bullish case for silver in 2016

1) Devaluing the yuan. Earlier this year, China abruptly announced it would devalue the yuan by 2 percent against the U.S. dollar. The government wanted to spur economic activity in the People’s Republic. Instead, they spooked currency traders who started selling the yuan. In turn, that forced China to start selling some of its dollar holdings, so the country could buy its own currency. That heavy selling is putting downward pressure on the dollar. Some speculate it could lead to a considerably weaker dollar, which might encourage more investment in hard assets like gold and silver. Gaurav S. Iyer, a research analyst and editor at Lombardi Financial, speculates that the weaker dollar might push silver back toward its 2011 peak around $50 an ounce.

2) Supply strain. Most of the silver that’s mined in the world is a byproduct of mining for other metals (copper, zinc, gold and lead). Since metal prices have fallen across the board, mining companies have drastically cut expenses and lowered their production levels by shuttering some mines. Less gold, copper and zinc means less silver, too. “Take Canada, one of the world’s major silver producers, for example,” writes Michael Lombardi. “Year-to-date, silver mine production in Canada has declined by 20%.” This could lead to a silver supply crunch if the global economy starts picking up steam (as many expect it to do next year). That’s because silver’s used extensively in many high-tech products.

3) A skewed ratio. The silver-gold price ratio is north of 70. Put another way, an ounce of silver costs more than 1/70th the amount of an ounce of gold. “Over the last 40 years, the grey metal averaged a 42.8 conversion rate with gold,” Iyer writes. “History has shown that a rise in silver prices are all but guaranteed when the ratio tops 70. It’s sitting at 75 right now.” According to him, that means we could see silver prices surge 420 percent from where they are today.

The bearish case for silver in 2016

1) A strong dollar. China’s devaluing the yuan. India and the Eurozone are increasing their quantitative easing programs, and the U.S. Federal Reserve is planning to hike interest rates this year or early in 2016. All signs point to a strengthening dollar. And that negates one of the most powerful incentives to invest in silver: using it as a hedge against a dollar collapse.

2) Deflation. What will be the biggest determinant of silver prices in 2016? Whether we see inflation or deflation. Since precious metals have a finite supply, they act as a hedge against inflation (much like real estate and even stocks). When we’re in a low-inflation environment – or worse, a deflationary environment – it just doesn’t make sense to hold a large position in silver. Across the globe, signs are pointing toward deflation. Credit default swaps are rising, currencies in emerging countries are declining (a sign of slowing global growth) and the rising dollar is disproportionately punishing companies outside the U.S. If we tip toward deflation, we’re probably not going to have rising silver prices.

3) The bear market continues. I always follow momentum until that momentum is broken. Silver’s down more than 70 percent from its 2011 peak. The metal is in a bear market, and I’m not ready to call a bottom yet. Neither is JP Morgan.

Here’s their 2016 silver price prediction: “Silver prices will broadly continue their bearish trend for the coming two quarters before finding greater strength in the second half of 2016,” they said early last month. Specifically, JP Morgan is predicting silver prices will average $14.08 in Q1 of 2016 and $14.65 throughout the year.

Where do you think we’ll see silver prices in 2016?

Watch out below: Silver prices low and heading lower

At prices below $20 an ounce, silver is now flirting with 3 month lows. And it may have further to fall. In fact, I wouldn’t be surprised to see it hit new lows for the year and then target lows we haven’t seen since 2010.

At prices below $20 an ounce, silver is now flirting with 3 month lows. And it may have further to fall. In fact, I wouldn’t be surprised to see it hit new lows for the year and then target lows we haven’t seen since 2010. There are just too many headwinds out there. To name a few:

1) Inflation is anemic at 1 percent.

2) Stocks are outperforming other asset classes. They’re paying great dividends and carry much less risk. Why invest in precious metals and watch your capital shrink when you could buy shares in Wal-Mart (WMT), be up 15 percent on the year and be earning a 2.3 percent dividend?

3) The Fed surprised the market by signaling that tapering is “in the cards relatively soon.” That doesn’t sound very damning in and of itself, but officials took it a step further when their recent meeting minutes revealed they were willing to taper even if the job market wasn’t improving significantly.

That says one of two things to me:

a) The Fed is nervous about inflation.

b) The Fed trying to head off an asset bubble in stocks.

Inflation worries just aren’t here yet. That means, Option B is likely with two of the three leading stock indices at record highs. On the year, the Dow’s up 22 percent, the S&P’s up 25 percent and the Nasdaq is up 31 percent. We can’t keep that pace up without some assistance or some serious economic growth – and we’re definitely not seeing serious economic growth.

Silver price predictions

If the bearish trend continues, MIG Bank in Switzerland is predicting that we’ll test silver’s summer lows around $18.23 an ounce (per Bloomberg). That’s 8.7 percent below the current price of $19.98. If we do close below this summer’s low of $18.23, silver could tumble precipitously. Indeed, we might not find real support until we hit 2010 lows around $15 an ounce. That would be a plunge of 25 percent.

Of course, if we do see a big sell-off in silver, I don’t think it will be long-lived. Check out my post Silver price forecasts and predictions for 2014. I do however wonder if Bitcoin’s stealing some of the white metal’s luster, and I’m quite a bit more bullish on it than I am on precious metals right now. Check out my post Bitcoin inflation hedge: The new gold and silver to learn why. And, if you like that, you’ll love this: The case for bitcoin at $100,000.

Bitcoin inflation hedge: The new gold and silver

Here are 4 reasons why I believe bitcoin will serve as a better hedge against than gold or silver in the years to come.

Here are 4 reasons why I believe bitcoin will serve as a better hedge against inflation than gold or silver in the years to come:

1) Limited supply. We know exactly how many bitcoin will ever be mined. As of this writing, there are 11,956,400 bitcoins in existence. New bitcoins will continue to be “mined” until we reach 21,000,000. Once we hit that number that’s it. No more bitcoin. Nada. Zilch. That, of course, stands in stark contact to gold, silver and fiat currencies.

2) Simplicity. Buying bitcoin is as easy as transferring money between say your checking and savings accounts (check out my guide on How to buy bitcoin). Buying gold or silver requires some knowledge. You’ve either got to buy physical coins or bullion, mining stocks, ETFs, a stake in a trust or you need to pay someone else to buy and hold gold or silver for you. With bitcoin, you’re responsible for keeping your private security keys safe. That’s it.

3) Liquidity. There is no practical limit to how much or how little bitcoin you can buy. Want to buy $0.25 worth? Go for it. Want to buy $1,000,000? You can do that, too. Think of it like going to the currency exchange counter after flying to Mexico. You hand someone some dollars, they give you pesos. If you’re trying to sell an ounce of gold that’s worth $1,300 on the other hand, you might have to search quite a bit to find a buyer near you.

4) Speed. We’ve already seen how quickly the price of bitcoin can move. That’s particularly true in the midst of a crisis of confidence or currency problem. Take the example of Cyprus. Earlier this year, the tiny island country announced it was confiscating a portion of the funds foreigners held in the country’s bank accounts as part of a bailout package. In a rush to withdraw their cash from Cypriot banks, investors poured their money into bitcoin pushing the price of the digital currency up twofold in a week. Similar currency problems in other countries could accelerate bitcoin’s phenomenal growth.

How high could bitcoin go? Check out our post: The case for bitcoin at $100,000.

Silver price forecasts and predictions for 2014

Silver prices have taken a beating over the past two years. Will 2014 be the year when they finally break free again?

2013 has been a rough year for silver. Prices for the precious metal have fallen nearly 30 percent when they opened trading in January around $31 an ounce to today’s price of roughly $22 an ounce. It’s the definition of a bear market. We’re seeing a series of lower higher and lower lows that’s best illustrated by looking at an annual chart for the white metal:

Numerous factors have been working against the metal this year. Specifically:

  • Lower-than-anticipated inflation.
  • Economic growth in the U.S.
  • The likelihood that the Federal Reserve will soon start tapering its aggressive bond-buying program.
  • Economic uncertainty in China and the Euro-zone, which strengthens the dollar.

And yet, I remain convinced that the U.S. faces significant inflation and higher interest rates in the future, and that could lead to yet another surge in the price of precious metals, commodities, and perhaps even Bitcoin (check out my post on How to buy Bitcoin). I’m not alone either. While there are bears out there, a lot of forecasters are predicting higher silver prices in 2014 and beyond. Let’s take a look at the top 2014 silver price predictions:

  • $60 an ounce in 2014: So says MoneyMorning writer Tony Daltorio who expects prices to close out 2013 somewhere near $40 an ounce (something I’m skeptical of).
  • $36 an ounce in 2014: Silver is undervalued at today’s prices says Steve Nicastro at SeekingAlpha. He bases his assessment on the gold-silver ratio. “A conservative estimate of the gold:silver ratio at 35:1 would put silver at $36 an ounce at the current gold price,” he writes. “With gold at $1,500, silver would sit over $42 an ounce. With gold back at the 2011 highs of $1,900 an ounce, we could see silver top $54 an ounce, or higher.” Look for next year’s gold prices to see if and when silver is over- or undervalued.
  • Look for “record silver prices within the next 10 years.” It’s not a very helpful forecast, but that’s what the CPM Group is forecasting. They’re staking their prediction on increased industrial demand for the metal.
  • $21 an ounce in 2014: That’s BMO Research‘s forecast for the average silver price in 2014. They even revised that higher from $18 an ounce in October. Wow. Talk about being bearish. It’s almost enough to turn me into a contrarian.
  • Look for a surge in metals prices “late in 2014” according to Thomas Paterson. Paterson argues that household deleveraging has kept inflation tame. Once the average American has paid down enough of their debt to start making substantial purchases, inflation will grow rapidly as money velocity speeds up. Gold and silver prices will surge as that happens, Paterson believes. He argues that late in 2014 will “be time to bet the ranch on gold.” I’m extending his argument to silver, too, though I would never say you should “bet the ranch” on any single investment.
  • $27 to $28 an ounce in Q2 2014: That’s the latest prediction from Victor Kerezov. Kerezov believes silver prices will remain muted through the first quarter of 2014.

Of course, there needs to be a reason for silver prices to move higher. Specifically, we need a catalyst – some pronounced trigger or indication that it’s time to start buying metals again. Those triggers could include:

  • An increase in economic stimulus from the Federal Reserve or congress.
  • A sudden jump in inflation.
  • Short covering (buyers who are betting against silver start covering their bets).
  • Growth in physical demand or a supply shortage due to mine closures. The solar industry, for example, could drive increased demand for physical silver.

Once any of those triggers are hit, the rest could follow quickly and we could see a surge in silver prices reminiscent of 2011.

Why silver investors should stay away from silver coins

There is nothing wrong with collecting coins if you ARE ALREADY A MILLIONAIRE. If you are not then you need to sell your coin collection right now to the highest bidders.

-Posted by Alejandro Guillú Mendoza

Introduction

This article tries to explain in a simple way to readers without a college degree in economics or finance some macro economic factors that are currently changing the global supply and demand of silver.

Ground rules

Silver coins ARE NOT INVESTMENTS. Silver coins are still minted by countries to satisfy the unlimited demand for numismatists around the world. When you acquire a silver coin you are not only paying for the precious metal itself but also for the graphic design and for the minting.

Countries make billions of dollars each year buying silver by the ton and reselling it as coins.

There is nothing wrong with collecting coins if you ARE ALREADY A MILLIONAIRE. If you are not then you need to sell your coin collection right now to the highest bidders.

The problem with silver coins is that you need to pay for insurance each year and that cost eats some of your profits.

If you want to invest in silver then you need to buy either a silver mine or the ETF SLV. There are other financial instruments for more sophisticated investors that I am not going to cover in this article. If you want me to write about them then drop me a line.

Does Apple buys a lot of silver?

Silver is the best conductor for electricity, and in some cases the cost is not as important and it is used instead of copper which is cheaper (i.e. for small, complex electronics). One easy way to predict if we will buy more technologically advanced things made with silver is to closely watch the global GDP. If the world is expanding then it is likely that we will build more expensive things made with silver.

You can read the World Economic Outlook published by the IMF.

If you want to invest in silver, then you need to keep an eye on the price of copper because this metal is used only because silver is too expensive. If the price of copper starts to rise too much, then some companies may just decide to switch to silver.

Obviously, this is just a theoretical point. In reality, Chile, Peru, Argentina, Brazil and Mexico won’t let that happen, and they will just lend billions of dollars to publicly-traded copper mining companies to keep the price of copper low.

Digital cameras for everybody

Silver nitrate has always been used for photographs, and over half of all the silver mined was used for this before the digital camera was invented. This number is getting smaller and smaller every year, and one day we won’t use silver nitrate anymore. That would increase the number of silver available for other industrial uses bringing down the price of silver in the future.

If you are a politician in a country with a very limited supply of silver, then you need to reduce the demand for silver nitrate in your country as much as you can with the expansion of access to digital cameras to the general population.

Let companies like Nikon, Olympus and Canon import digital cameras without paying any taxes.

Allow these companies to issue Visa, MasterCard, American Express, Discover, UnionPay and JCB credit cards to buy their digital cameras insured by the government.

More than 90% of the world’s silver is produced in Mexico, Peru, China, Australia, Russia, Chile, Bolivia, Poland, the United States and Canada. If these countries reduce their own consumption in silver nitrate, then they will have more silver for export.

As you can see, the price of silver is not really about finding more silver mines but about finding smarter ways to use LESS SILVER.

What is the Protect our Silverware Act?

Most people with silver jewelry, silverware or silver coins are wealthy, and they don’t lose any money every time a burglar enters their house because they’re reimbursed by insurance. The rest of us are hurt by the insurance companies because every time they write a check to pay for these crimes, they increase the bill for all of us.

If less silver is stolen then the prices we pay to protect our homes will be reduced over time.

It is a known fact that burglars only steal from you when you are not home. A very popular trick among thieves is to call everybody until you get an answering machine. I strongly suggest you to get rid of your answering machine and just reroute your old telephone to a cell phone answered by one of your employees in China, India, Indonesia, Brazil, Pakistan, Nigeria, Bangladesh, Russia or Mexico.

You can hire one on Elance for just a few cents per hour.

I propose a new law that will force any silver seller to register every silver buyer into a national database and each silver holder will be forced to hire a silver sitter when they are not home.

Let’s say that you are going to leave town for a few days on business. You call the Silver Police and they will send you an employee that will stay in your home for a few days until you return. Each silver holder will pay a “Silver Police Tax” each time he buys something made of silver to pay for this new Police Department.

This will reduce crime among families holding silver and will also reduce unemployment.

Conclusion

I believe these 10 countries will enact new smarter laws to keep the domestic supply of silver very tight and will also increase silver exports to other least developed countries with more loans to small businesses exporting jewelry and mirrors and other clever measures like a silver stamp that you can use to ship any item made of silver to an eBay or Amazon buyer in another country.

Top 10 silver price predictions for 2013

Where have all the silver bulls gone? Price predictions for the white metal are all over the board in 2013.

Posted by Alejandro Guillú Mendoza.

Many people around the world want to know the answer to the question, “Where is silver going?”

I invested several hours browsing the Internet searching for answers to save you time and money (because time is money, after all). Have another financial question? Drop me a line. Please don’t ask me where your lost kitten is or why she left you. Ask me about topics that can make you money, like silver!

Here are my findings on the latest silver price predictions for 2013, 2014 and beyond. The prices are sorted from low to high:

1) $26 Barclays according to CommodityOnline

Barclays believes strong production growth in mining will knock silver prices down and keep them low in 2013. “We expect it to grow to 25.2kt in 2013, with the slowdown in output from Australia and Europe being offset by strong growth across South America and Asia. We expect modest growth from the major producers, with Mexico retaining its pole position.”

2) $30-$32 Neil Meader (Head of Precious Metals Research and Forecast) according to Forbes

“For the moment, we would expect to see a continuation of the price volatility that we’ve seen of late.

“The unknown for the longer term is inflation.”

“It would be wrong to assume that a year-on-year price fall automatically presages an end to the multi-year rally; that occurred in 2009 and yet prices (based on the annual average) then more than doubled in just two years.”

3) $31 Deutsche Bank

The bank lowered its forecast last month 16.5% to $31 according to Fox because the demand for stocks over commodities is rising and the growth in the United States of America is improving. The 2014 forecast was also significantly reduced.

Excluding major banks currently in the red. Deutsche Bank is the fifth least profitable major bank in the world with barely $400 million in profits. It appears they are no longer qualified to give financial advice to anybody. Perhaps they should hire me. I can easily turn a profit of $40 million. I am just a regular guy. They have 100,000 employees.

4) $33 HSBC

The bank increased its target for silver from $32 based on four factors driving prices higher: industrial demand, investor appetite, strong coin and bar purchases and a bottoming out of jewelry demand according to the Wall Street Journal.

“Greater industrial silver consumption is one of the most compelling arguments in favor of higher prices.”

5) $34.10 BNP Paribas

The bank reduced its silver 2013 forecast a few months ago to $34.10 from $39.05 according to Reuters.

6) $35 Morgan Stanley

Morgan Stanley is very bullish on silver and selected the precious metal as one of the Top Picks for 2013 according to BusinessWeek.

“Gold, silver and corn will outperform other raw materials next year as a weaker dollar and rising investor demand bolster precious metals while supply curbs aid grains.”

7) $38 Commerzbank according to the Wall Street Journal

Silver is “establishing itself as a precious metal with an industrial character, setting itself significantly apart from gold.”

8) $40.25 Michel O’Brien

Silver To Gain 29% in 2013 – Analysts, Traders and Investors.

“The silver market remains a very small market and this continuing global investment and store of value demand should lead to silver reaching a real record high, inflation adjusted, of over $140/oz in the coming years.”

9) $50-$60 Ge Christenson according to SilverSeek

“This is not a prediction based on wishful thinking and hope, but a best estimate based on rational analysis of data stretching back to 1975.”

“Silver (and gold) will continue to rise, doubling every 3 – 4 years, until our government manages to tame the deficits, the borrowing, and the inevitable inflation.”

10) $91 Equity Management Academy

Silver Doctors started recently in 2011 and they are visited by over 750,000 each month. The video analysis by Steve Roy is only 9 minutes long.

This was the highest forecast I could find at the time of this writing – a time when, admittedly, silver prices are extremely low. It’ll be interesting to see which of the predictions above come the closest to the truth by the end of the year.

The real reason 2013 Silver Eagles hit an all-time high in January

The U.S. Mint probably isn’t the best gauge of market demand for silver. It’s too easily overwhelmed by demand, and that pushes sales forward into months when demand could otherwise have been low.

Because the silver investment market is so small, it’s particularly vulnerable to hype. That’s exactly what the commodities research firm CPM Group thinks is happening now as investors trumpet the “incredible” demand for silver coins in January. While the U.S. Mint did announce all-time sales records for 2013 silver eagles in January (with 7,498,000 coins sold), CPM Group argues that’s just a hold-over of pent-up demand from earlier in the winter.

“All of this talk about a shortage of silver is irrational and not supported by readily available market data,” CPM Group says in its latest report.

Specifically, the company cites worries over the Fiscal Cliff in November and December as driving up demand for American Eagles. Since the Mint sold-out of coins in both November and December, that demand rolled forward into January driving sales up to record levels.

CPM Group’s been painting a pretty bleak picture of silver prices going forward. The commodities research firm believes prices will head lower over the next decade (through 2022) rather than higher as most silver price prognosticators would have you believe.

I’m not ready to make that assumption, but there are lessons to be learned from CPM Group. Mainly that the U.S. Mint isn’t the best gauge of market demand for silver. It’s too easily overwhelmed by demand, and that pushes sales forward into months when demand could have otherwise been low.

Have silver prices finally hit the turning point?

The pop in silver prices on Thursday felt different to me, and I went long silver for the first time in months. Here are four reasons why I think silver prices could be due for a sharp upturn.

Since topping out around $35.50 an ounce late in February, the price of silver has done little except fall. Sentiment in the precious metals market seems to be hovering at multi-year lows with investors shunning the metal for riskier assets. That is until late last week.

The pop in silver prices on Thursday felt different to me, and I went long silver for the first time in months (buying shares in ProShares Ultra Silver ETF – NYSE:AGQ). Why? Here are four reasons why I think silver prices could be due for a sharp upturn:

1) QE3. We thought Operation Twist buried our chance to see further monetary easing out of the Federal Reserve. Don’t give up hope just yet. The metals bounced hard on Thursday after meeting minutes from the latest Federal Open Market Committee gathering held hints that further quantitative easing is still a potential option if the U.S. economy remains sluggish. Another round of QE would likely ignite a surge in commodities across the board.

2) Too far, too fast. Silver prices have crumbled more than 11 percent in the past three weeks. The drop last Wednesday was extreme with the metal shedding $1 an ounce in a single day of trading. A plunge that large feels like concession selling. And we all know when we see concession selling: right before the start of a recovery.

3) The bull market in precious metals is still intact. While we don’t always like to admit it, silver prices generally follow gold’s lead. Sometimes, it can feel like it’s the other way around since the silver market is so much smaller than the gold market, but we’d be kidding ourselves to say that silver prices aren’t extremely dependent on what the price of gold is doing.

And gold’s been flirting with important psychological levels lately. For one thing: last week’s lows (hit on Wednesday) coincided with a 20 percent drop from last year’s highs (per Forbes). That key technical level seemed to awaken a lot of the sleeping bulls who promptly piled back into the metal. After all, a 20 percent drop is considered the cut-off for the transition from a bull market to a bear market. Had gold continued dropping (and particularly if it would have fallen below $1,500 an ounce), you could have taken it as a sign to sell your metals and head for the hills. Until we get that confirmation, though, I’m leaning to the bullish side for gold (and therefore silver, too).

4) The Grecian plot thickens. The primary reason I think last week’s low in silver prices was a turning point is this: fears that Greece would leave or get booted from the Eurozone were still at a fever pitch. For the past month or so, problems in Greece have been amplifying, and I think that’s a big reason the price of precious metals have fallen.

Investors didn’t want a “safe haven”, they wanted cold, hard, highly-liquid cash. Indeed, some €700 billion reportedly left Greek banks in a single day last week. Last Thursday and Friday marked the first two days gold and silver prices have climbed in the face of the fears of a default in Greece. That could be a sign investors are betting the EU will announce new stimulus or that they’ve accepted the fact that a collapse in Greece is unavoidable. Either way, the rise in precious metals – despite the bad news out of Greece – was enough to turn me bullish on precious metals (at least for now).

PSLV vs. SLV: Battle of the silver ETFs

Both SLV and PSLV accomplish the same goal: exposure to the spot price of silver without actually buying silver. In the end, then, it comes down to two factors…

While they’re both silver ETFs, the iShares Silver Trust ETF (NYSE:SLV) and the Sprott Physical Silver Trust ETV (NYSE:PSLV) operate very differently. Here’s how they work:

The iShares Silver Trust ETF: The fund buys and sells silver in an attempt to have it’s share price match the value of its bullion holdings. If the value of the fund’s shares rise, iShares buys more silver. In theory, the fund’s market cap should equate to the fund’s silver holdings (less fees and liabilities).

Sprott Physical Silver Trust ETV: The Sprott trust operates much like the iShares ETF with one major exception, shareholders have the ability to exchange their Sprott shares for physical silver bullion on a monthly basis.

Although they operate similarly, the two ETFs have been on divergent paths year-to-date with the PSLV down 10 percent and the SLV up 4.8 percent. During the same time, the price of spot silver is up 2.54 percent on the year. It’s clear then that while the ETFs are designed to track an underlying commodity, they definitely come with margins of error.

And that’s actually making PSLV look quite attractive. In the past, the fund has traded at a premium of up to 35 percent above the price of spot silver (apparently investors like the fact that their holdings could be exchanged for physical silver). Today, PSLV’s trading at a premium of just 4.95 percent to the silver spot price.

There are benefits to both the ETFs approaches, though. First, the arguments for PSLV:

1) Redemption. Obviously, investors can choose to exchange their shares for physical silver – something that could come in handy if we do experience a currency crisis in the West.

2) Tax perks. If you plan to hold your silver ETF shares for more than a year, you can claim any appreciation as a long-term capital gain. That’s good for a 15 percent tax rate. Profits from SLV will set you back 28 percent under the current tax code.

3) Safety. The Royal Canadian Mint stores bullion for the Sprott trust. As Sprott writes on its web site, “The Mint is a Canadian Crown corporation, which acts as an agent of the Canadian Government, and its obligations generally constitute unconditional obligations of the Canadian Government.” SLV’s bullion is stored and managed by a private company (JP Morgan Chase: NYSE:JPM) with no government backing (unless, of course, you count the tacit promise of a bailout when times get tough).

Now the arguments for the SLV:

1) Low or no premiums. Since SLV doesn’t have to manage the costs associated with fulfilling delivery, the fund’s holdings trade at a much smaller premium to the price of silver. That’s important as premiums are subject to the whims of potential investors. As I wrote above, PSLV has traded with a premium as high as 35 percent above the price of silver in the past. You may as well go buy and store your own bullion at those prices.

2) Higher volume. A lot of silver ETF investors have no intention (or at least they don’t foresee the desire) to redeem their stock holdings for physical silver. For them, buying and selling shares is simply a vehicle to make money. SLV wins out if that’s your goal as the fund is much more liquid than PSLV. On an average day, more than 1.7 million shares of SLV trade hands compared with less than 100,000 shares of PSLV. This makes going both long or short the SLV much easier.

SLV Vs. PSLV: Which one’s better?

Both funds accomplish the same goal: exposure to the spot price of silver without actually buying silver. In the end, then, it comes down to two factors: security and taxes. If you know you’re going to hold your shares for more than a year (which entitles you to tax benefits) and you value the security of knowing your ETF shares can be redeemed for actual silver, buy PSLV. For all other traders, the SLV is perfect.

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Three signs silver prices have further to fall

While we’re certain the 12-year bull market in precious metals isn’t over, we do think there could be more pain for silver investors in the near-term. Here’s why…

A month ago, an ounce of silver was worth $33. Today, that same ounce is worth $29.50 – a drop of more than 10 percent. While we’re certain the 12-year bull market in precious metals isn’t over, we do think there could be more pain for silver investors in the near-term. Here’s why:

1) The Gold/Silver Ratio. The gold:silver ratio has been trending up since early March, and that trend probably won’t stop until the ratio re-tests January’s highs around 57:1. Why? Because swing and momentum traders themselves help cause the fluctuations in the gold:silver ratio. So long as the ratio is showing a clearly defined trend, and it’s not nearing any key resistance levels (or psychological barriers), those swing traders are going to short silver. Check out the steady upward climb in the gold:silver ratio:

[Source: Seeking Alpha]

2) Long live the dollar. The greenback can’t seem to do anything wrong. That’s despite explosive growth in True Money Supply (or the sum total of all the cash, deposits and notes that are floating about in our economy). Just check out this chart from Mises.org:

During ordinary economic times, you could expect the yields on U.S. bonds to spike in the face of such aggressive monetary easing. Instead, the dollar looks stable compared to the financial situation across the pond.

The Eurozone “is on a path that leads to eventual dismantling,” Peter Tchir of TF Market Advisors wrote in a note to clients on Monday (per IB Times). “Greece restructured debt, made different rules for different holders, and yet, the new bonds trade at 20% of par.”

Investors are telling the Eurozone countries that they no longer believe there’s a way out. That threat of a Eurozone breakup has bought the dollar some street cred that it probably shouldn’t have – and that’s bad for silver prices.

3) Even die-hard silver bulls are losing some of their excitement over the white metal. “While I do remain very bullish on silver, I must also admit that for the first time I can envision a scenario in which silver does not reach $100,” writes Simit Patel at Seeking Alpha. His reasoning? Gold will likely outperform everything (silver and stocks) if the equity markets remain soft.

Of course, all of the arguments above have me thinking that now might be the perfect time to buy silver. I’m not alone either. Check out my recent post Why Eric Sprott believes silver prices will triple to $100 an ounce in 2012. Just remember that if you do buy, though, you need to be able to hold onto the metal in the face of near-term weakness. Prices may be higher in three months, but what happens between now and then might not be pretty.

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