Is this a breakout for precious metals?

Front page article on MarketWatch.com this morning titled: Gold Revs Up. The point of the article is that gold has broken out of a month long trading range of $860 to $910 and is now trading close to $930. Silver has had a nice two day move, but is still trading about the same as 30 days ago.

There are a couple of points I take from the MarketWatch article. First the technical analyst types are looking for a price breakout if gold can top $940 or have successive closes above $920 (different analysts!). The other point is higher oil and a weaker dollar can only drive gold higher, and the dollar especially seems to have no way to turn around at this point. The soft economy will have the Fed keep interest rates low, continuing the erosion of the greenback.

On the silver front, it appears that a true break to the higher side has not yet occurred, but I have to believe that the gold break out is nothing but positive for higher silver prices. Some of the silver mining stocks have made impressive gains over the last couple of days. Silver Wheaton, SLW, has gained 15%, Pan American Silver, PAAS, has also gained 15%, and Hecla Mining, HL has added 23% in the last 3 days. Over the same time period the S&P 500 index has shed almost 4% of it’s value.

At this time, either as a hedge against a stock portfolio or as a primary investment, silver holdings appear to be a good place for further gains.

Silver Investing and the current economic environment

I have been doing a lot of reading on the different ways to invest in silver as well as keeping an eye on the current economic news, which seem to have a very negative trend these days. I have not seen a U.S. economy with as many problems since the late 1970’s. Energy and food prices are rising, employment and house values are falling and none of these trends seem to be reversing soon. If you are older, like myself, you can remember that investments in precious metals did very well in the 1970’s and early 1980’s.

Looking at silver investment, I see some pros and some cons. The biggest pro of silver is that the metal has a significant demand from several sources. Industrial use, photography, coins, jewelry and other decorative uses, and investor demand add up to almost 900 million ounces per year. Global mine production, on the other hand, was about 670 million ounces in 2007, leaving a 200 million ounce shortfall that is made up from the scrapping of old silver products and government sales. Silver is finding growing uses in industrial applications, so the trend towards higher silver prices makes economic sense.

The challenges for the silver investor are a little daunting also. A big factor is the storage of physical silver. $10,000 worth of silver weighs almost 600 lb. and takes up a lot of space in the old gun safe! $10,000 of gold is about one pound. Now you know why the storage fees for silver at the bullion companies are so much higher than for the shiny yellow stuff. I lived in Las Vegas when Ted Binion was killed by his girl friend (allegedly) so she and her husband could haul off his $7 million silver hoard buried in the desert. They couldn’t figure how to transport it.

For the small investor, recently minted silver coins like Silver American Eagles or Silver Canadian Maple Leafs seem like a good option. Single coins or small lots can be picked up without too much mark up. I would check Internet prices and look for a local dealer to compare costs, sales tax and shipping to get the best value. This is definitely a buy, accumulate and hold strategy because the transaction costs are significant and the investor will be looking for a big run up in silver values.

For market traded securities, there are some interesting options for the silver investor. As a mining product, silver is usually a by-product from some other base metal mine and pure silver mining stocks tend to be of the very speculative variety. A fairly recent entry into this arena is Silver Wheaton, symbol SLW. Silver Wheaton has a unique business structure where they buy the silver production of several large gold and base metal mines at a fixed price of around $4 per ounce, then can resell the silver on the open market. They have 25 year to life-of-mine contracts and production is still ramping up at most of their contracted mines. SLW has very low overhead and tax structure so the majority of the profits on silver sales flow to the bottom line. Share prices of SLW have definitely been volatile, so the prudent investor should pick his entry point. Options also trade on SLW.

There are two silver based choices in the ETF (exchange traded fund) world. First up is the iShares Silver Trust, symbol SLV. SLV shares represent a share of actual silver bullion held by iShares. The amount of silver represented by each share will slowly decline as silver is sold to pay storage and management fees. This is similar to holding metal with one of the bullion houses, but probably less costly unless you are holding a very large amount of bullion. The second ETF available is the PowerShares DB Silver fund, symbol DBS. DBS tracks the Deutsche Bank Liquid Commodity Silver Index by investing in silver futures and rolling them as they mature. Expenses for DBS appear to be similar to SLV. If you compare the charts of SLV and DBS they track very similar, with SLV a few percent ahead over the course of a year. This is probably due to SLV’s 8 times advantage in net assets. However, DBS does have options trading while SLV currently does not, for you more aggressive, short term trader types.

The bottom line, is current economic conditions are ripe for investing in hard assets and silver has some interesting supply and demand considerations. Hopefully, I have listed a few interesting ways to invest in silver.

I want your feedback!

Hi, I am Tim Plaehn and I have recently been put on here at Silver Monthly as the Managing Editor. My goal is to bring timely and interesting posts and articles that will interest you, the silver investor, and hopefully make your investing more profitable.

My background is primarily as a stock market guy, but I have a wide range of interests when it comes to investing. My current interest in silver investing is a strong interest in the stock of Silver Wheaton [[SLW]], which I have actively traded over the last year. I am very interested in becoming more knowledgeable of the other ways to invest in silver.

As the new guy on the block I want to throw out a couple of questions and I hope many of you respond:

1. What is your preferred avenue of silver investing: bullion, coins, mining stocks, ETF or something else?
2. What draws you to silver vs. other investment choices?
3. What types of information would you like to see more of here at Silver Monthly?

This should be interesting reading for myself and those who chose to comment. Do not let your fellow readers down, leave your opinion in the comments section of this article! Most of all, leave some good ideas to make my work here challenging and interesting.

Top 10 Books for Silver Investors, Best Sellers and Best Reviews

1. Get the Skinny on Silver Investing, by David Morgan — best seller, high reviews.David Morgan has been a private economist for over two decades. His background started in engineering then later with an advanced degree in Economics/Finance gives a unique perspective to the financial markets that pure business majors often miss. He applies the discipline of logic to verify the basics of economic law. Mr. Morgan has been published in The Herald Tribune, The Wall Street Journal, and Futures Magazine to mention a few.

2. Ruff’s Little Book of Big Fortunes in Gold & Silver: A Middle Class License to Print Money, by Howard Ruff — best seller, high reviews. This small book is deliberately designed to teach the investment novice exactly what to do as the bull market unfolds, including why, how and where to buy precious metals and mining stocks - as well as how to avoid costly mistakes. It is also an essential review for dedicated gold bugs to help them in this new and ever-changing market.

3. The ABCs of Gold Investing: How to Protect and Build Your Wealth with Gold, by Michael J. Kosares — best seller.
This book discusses topics beginning investors will find thorough guidelines for making good decisions in this guide to private gold ownership. Emphasis is placed on the asset-preservation qualities of gold at a time when investor uncertainty about the economy and recent investment scandals have led many to seek asset diversification. The economic and political trends driving gold marketing are detailed, as are the reasons why gold plays an important role in millions of investment portfolios worldwide—as both a hedge and an investment for capital gain. Topics examined include understanding gold’s role in combating inflation and deflation, how to select a gold firm, the history of gold since 1971, storing gold, and government debt.

4. The Collapse of the Dollar and How to Profit from It: Make a Fortune by Investing in Gold and Other Hard Assets, by James Turk and John Rubino — best seller.
James Turk, a leading gold authority and the founder of GoldMoney.com, and John Rubino, editor of the popular Web site DollarCollapse.com offer strategies for investing in gold coins, gold stocks, gold-based digital currencies, and other hard assets to create a profitable portfolio.

5. Precious Metals Investing For Dummies, by Paul Mladjenovic — best seller.
This book gives readers a clear and thorough introduction to investing in precious metals, including gold, silver, and other precious metals.

It includes information on the different types of metals, how to mix them into a portfolio, the risks and rewards in metal trading, the different ways to purchase and trade metal, and trading plans and strategies. With precious metals performing so well in today’s markets, this guide will be a trusted, valuable resource for novice and experienced traders.

6. Junior Mining Investor: 14 Natural Resource Experts Show You How to Invest Profitably – best seller.
This book brings together the combined wisdom of 14 mining-industry veterans, including David Morgan, Brian Fagan, Jason Hommel, and others, to reveal how they make money speculating, trading and investing in junior mining and exploration stocks. Those topics trade like no other sector and the potential to double or even triple your investment in 2-3 days means you have to be in the right stock at the precise time. Each succinct chapter presents the author’s strategy and offers step-by-step guidance on implementing it for maximum profits.

7. The Dollar Crisis: Causes, Consequences, Cures, by Richard Duncan — best seller, high reviews.
“I held a class for about 150 people on the book entitled “The Dollar Crisis,” authored by Richard Duncan. If you want to better understand why the real estate bubble bust and the crash of the dollar will probably lead to a prolonged recession, you may want to read this book sooner rather than later. In a nutshell, we really do not have a real estate bubble… the world is in a currency bubble. In other words, the governments of the world have printed too much ‘funny’ money and cash will soon turn to trash. Even if you are not in real estate or are saving dollars, you may want to read this book to find out what you need to invest in now, before the bubble bursts. If you are in stocks and mutual funds, you definitely want to read this book,” said Robert Kiyosaki, author of Rich Dad, Poor Dad

8. The Silver Pennies: An Investors Guide to U.S. Silver Stocks by David Bond –high reviews.
The number of American Silver Mining Stocks has shrunk by 100 in the past decade, but three dozen still thrive, in varying stages of exploration, development, and production. Contained herein are their stories. Herein is also silver’s story, its rise as the preeminent strategic metal of our times and its re-emergence as a store of value.

9. Gold: The Once and Future Money, by Nathan Lewis — high reviews. Nathan Lewis’s, a former chief international economist for a research firm, ultimate conclusion is simple but powerful: gold has been adopted as money because it works. The gold standard produced decades and even centuries of stable money and economic abundance. If history is a guide, it will be done again. As described on the inside flap, “Lewis also provides an engaging history of U.S. money and offers a sobering look at recent currency crises around the world, including the Asian monetary crisis of the late 1990s and the devastating currency devaluations in Russia, China, Mexico, and Yugoslavia. And, in doing so, explains why making gold a part of your portfolio has never been more important than it is today.”

10. Commodities Rising: The Reality Behind the Hype, by Jeffery M. Christian — high reviews.
With Commodities Rising, You’ll learn how commodities can be used to reduce risk and increase returns in a balanced investment portfolio. Author and commodities expert Jeffrey Christian debunks much of the misinformation currently circulating about commodities and provides a reasoned reality-check you can use to evaluate the claims and promises of various publications and brokerages in the commodity field. Specific issues addressed throughout this book include: variety of commodity investments such as exchange traded funds, stocks, futures, and options, commodities in the global economy, and investing strategies.

Write for Silver Monthly: An Editor Position Now Open

A new position as opened up here at Silver Monthly — Managing Editor. If you are enthusiastic about finance, investing, and the silver market please apply now. We’d love to have you!

Book reviews, editorial opinion, money and investing, market updates, how-to articles are all topics an editor can cover.

Pay is based on a monthly payment of $124, but could also include a bonus based on readership growth.

Minimum of one (1) article per month, but depending on the number of words, two articles per month is encouraged. Enthusiasm for silver, investing, and finance, is more important than writing ability; however, writing ability is preferred.

How to Apply:

E-mail (careers@silvermonthly.com) any information you feel would help us make a better hiring decision. This could include, but not required, a resume, writing samples (please send a URL, not an attachment), and a statement indicating your enthusiasm for sharing information about finance and investing in the silver market.

Top Ten Stock Picks for Metal Investors in 2008

With the declining dollar bouncing the price of gold and silver to historic heights, the year 2008 will most likely see the same trend continue. Many analysts see gold at $1,000 an ounce.

So, for the investors looking for some hot stock picks, follow a general rule for mining stocks, “for the most part, senior gold producer stocks have been the beneficiaries of gold’s move. Usually, majors begin to move then mid-tier, juniors and then finally explorer gold stocks rise,” notes Toby Hansen, who writes for SeekingAlpha.

1. Lihir Gold Ltd. (LIHR)
2. Barrick Gold (ABX)
3. Gold Corp (GG)
4. Newmont Mining (NEM)
5. Anglo Gold (AU)
6. Silver Wheaton (SLW)
7. Pan American Silver (PAAS)
8. Silver Standard Resources (SSRI)
9. Hecla Mining (HL)
10. Coeur d’Alene Mines (CDE)

Bettercaring: A Look at the Care Options

The amount of websites broadcasting their content springs upward into the heights of the on-line world. And, bettercaring.com is no exception, bettercaring “a dedicated service for anyone who needs answers to crucial questions about care for themselves or their loved ones” pushes its place on the Internet as a place to get all the answers asked during adult care homes.

Unlike some websites drifting through the Internet without any content, bettercaring has, what they claim, “daily articles.” However, there isn’t a stated author for the articles making the content less credible.

Even though I’m harshly critiquing bettercaring, “you can look at the care options that are available so that you can arrange the right kind of care, read daily care news and views, and receive tips on from care experts.”

Bettercaring includes a discussion forum that allows users to discuss their own experiences within the care system. But what website doesn’t have a discussion forum? With the extremely low cost, almost every website has a discussion forum.

If I was the senior editor or publisher of this website, I would publish who was responsible for each article which should lend some credibility to the content.

I would also change the design of the website creating a higher professional design, which would further add credibility to the content and brand behind the content.

Investing in Silver Using Stock Options: The Basics

Stock options are a form of leverage for advanced investors to boost returns of his or her stock portfolio. In the most basic definition, an option is a contract, the option to buy or sell a certain stock at a predetermined price.

Options are leverage; using leverage either increases investment returns or burns investor’s portfolios. Like options, guns are a form of leverage, if you’re hitting your target great–but you can also blow your foot off.

There are many reasons an investor may use stock options, hedging, lock-in gains, or as speculation. By hedging an investor reduces the risk of losing money during a price decline. Likewise, an investor would use stock options to reduce the risk of losing gains from selling options. And these advanced investors may wish to speculate on a stock price movement, therefore might use stock options to play the market.

Vocabulary of an Options Trader

We’ve already covered some of the vocabulary of options trading, but now we’ll dive in deeper to explain the difference between call and put options, then explain a few simple strategies option traders use to boost gains.

A call option is the right to buy shares at a certain price. Conversely, a put option is the right to sell shares at a certain price. Simply meaning, a call option means you expect the price of shares to rise. Whereas, buying a put option means you expect the price of shares to decline.

The strike price is know as the price which shares may be purchased or sold. This means, if you bought an option with a strike price of $50, you could buy or sell the shares of the option at $50.

But why would anyone want the option to buy or sell at $50? Well what if you had the option to buy the shares at $50, then the price rose to $51, you would’ve made $1 per share. Similarly, what if you had the option to sell the shares at $50 and the price fell to $49, then you could’ve sold the shares at $50 then bought the shares again at$49–a profit of $1 per share.

In both put and call options the purchaser has the option to exercise her purchase, while the option seller has the obligation to respond to the buyers request.

So, How Does This Help My Silver Portfolio?

Well, you know that the FOMC (Federal Open Market Committee) is getting to lower the target interest rate, thus causing a further decline of the U.S. Dollar and increases the rise of inflation. So, you buy a call option now, and when the FOMC lowers rates you get to profit from the price increase of silver mining companies.

Or the opposite situation where you think the FOMC is getting ready to increase the target rate, so you buy put options and profit from the fall in prices of silver mining companies.

Puts, Calls, and Conclusions

Carefully consider using options to invest because of the leveraged nature of options. Options may provide opportunities to increase your portfolio, but options can also burn through your portfolio at break-neck speed.

Also consulting your tax and investment advisers will prove to be a prudent move. Options have different tax effects your tax situation. Before investing in options, it is important to thoroughly understand the potential risks and benefits–options could either help or hurt your portfolio.

After War: The Political Economy of Exporting Democracy

I packed myself into a full room of budding economists and future policy makers, mostly students from Hampden-Sydney College, to hear Chris Coyne. As the late professor of economics here at Hampden-Sydney speaks, Coyne’s fast, but often sporadically connected, arguments attempt to answer: “Why liberal democracy takes hold in some countries but not in others?”

Coyne, an Assistant Professor for the Department of Economics at West Virginia University, is rumored to have a “Who is John Galt?” (from the popular Ayn Rand novel), tattooed on his arm, illustrating his passion for free markets—which makes Coyne an excellent candidate to address the issues of economics in the exportation of American democracy.

In After War, Coyne, the economists, addresses foreign policy questions by applying an economic mindset to a topic traditionally tackled by historians, policymakers, and political scientists.

Or as Coyne explains, “Economics focuses on how incentives influence human action. From an economic standpoint, a successful reconstruction effort requires finding and establishing a set of incentives that make citizens prefer a liberal democratic order over any available alternatives.”

Coyne provides insight into why occupiers have failed in their efforts to create the incentives that underpin liberal democracy. But, as he mentions liberal democracy, he admits he doesn’t vote, stating instead that an individual’s vote doesn’t count (unless that vote tips a tied election). “You have a higher change of dying on the way to vote, than breaking a tied election,” said Coyne.

Addressing the issue of successfully exporting democracy, Coyne writes “Historically, the United States has attempted to generate change in foreign countries by exporting liberal democratic institutions through military occupation and reconstruction.”

Yet, “despite these efforts, the record of U.S.-led reconstructions has been mixed at best. For every West Germany or Japan, there is a Cuba, Haiti, Somalia, or Vietnam, and more recently, Afghanistan and Iraq.” Coyne suggests, because of these failed attempts, the United States doesn’t understand the factors responsible for establishing a liberal democracy. Successful liberal democracy that is, because at gunpoint a liberal democracy is a fundamental contradiction. Forced democracy isn’t freedom.

It could be said that Coyne’s main idea suggests efforts to export democracy by military intervention are always inherently doomed to fail. Because of the special interest groups and poor information signals leading to bureaucratic waste, “we should consider other ways to fostering democratic reforms in areas where democratic governments have yet to succeed,” notes Coyne.

This book argues that the ability of foreign occupiers to create incentives for the local population is limited by several constraints, mainly constraints from politicians. The policy makers forget the characteristics of liberal democracy, the protection of civil, political and property rights, as well as the rule of law. Those characteristics would seem to have universal appeal, yet we know very little about how to foster them. After War illustrates these central arguments, both politically and economically, with examples from history and current reconstruction efforts.

Coyne’s book, After War, sheds light on how the U.S. political system contributes to failure in reconstruction efforts. And Coyne points to “major problems of coordination, both within and across the numerous bureaucracies involved in reconstructions.”

A large focus of Coyne’s work is both the domestic and foreign interest groups attempting to influence the U.S. government’s policies in a manner benefiting their own self-interest at the expense of the goals of the broader reconstruction effort. As the reconstruction effort halts the unintended consequences, from an occupation of Iraq, start creping further costs to the American people. The U.S. will feel, Coyne adds, the “blowback against the United States in the years ahead.”

While mainly focusing on recent events in Iraq and abroad, Coyne shows the failure of reconstruction efforts in Iraq and elsewhere is not a matter of political ideology or of the political party in charge. Nor is it an issue of trying harder with more troops or better planning. Instead, failure is due to the fundamental inability of any government to centrally plan economic, political, and social institutions abroad.

Coyne argues for “free trade combined with principled non-intervention affords the best chance for finding a common ground between cultures and for laying the foundations of global peace.”

Thank You,

In the spirit of the holidays, I’d like to take the time to say thank you. First thank you, to the readers, then to the sponsors. I’m encouraged to see the amount of readership growth that has happened this year. To date we’ve grown to an average of 161 daily unique visitors and approximately 25 loyal readers.

This growth couldn’t have happened without You. I’d like to thank you for spreading the word by linking up to articles and for emailing articles to friends and family.

I’d also like to thank everyone who has made a comment on any of the articles. Nothing is more encouraging to see our readers discussing the article. That discussion means to us, that you read the entire article and that it was worth talking about. Thank you for the comments you have made.

I’d also like to thank the sponsors. So far the sponsors have been through Google Adsense; however, that has begun to change. We are in the process of finding sponsors that will provide more value to the readers by highlighting services or opportunities not found through our current system, but I’ll give more details about that below.

Also part of the holidays is the process of thinking about the up-coming year. Talks within the company (ie. Me) have set plans to build a network of media properties to increase the value offered to our readers. Think about the increased trust you, as a reader, can have for a website when you know we are looking after it.

One such media property in development is The Silver Herald. This site will focus on news and commentary about the precious metals market. I hope the synergy between Silver Monthly and The Silver Herald will drastically increase the trust of both brands thus increasing the value of our content for the readers. But, I’d like to know what you think.

As The Silver Herald develops, I’m in the process of finding columnist and journalist. If you would like to write about the precious metals market in any way, please email me. At this time, the form of compensation will be barter deals for advertising and links to your book, blog, or website. The second form of compensation is our sheer excitement and appreciation of your knowledge and time.

Other websites underdevelopment are multiple blogs, a gold and silver forum, and a few topic specific websites. Like Silver Monthly, the success of this network will depend largely on the wonderful readers like you. I’d like to continue to say thank you for all you’ve done.