Lear Capital: Will Silver Rise Faster Than a Speeding Bullet?

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It looks like investing’s best kept secret is starting to leak out.  The silver price could be set to rise faster than a speeding bullet.

In December the U.S. mint was hit by another silver shortage and was forced to suspend sales of the Silver American Eagle.  By January 7, sales resumed and in just a matter of a few days over 6 million Silver Eagles were sold, far exceeding totals for the entire month of January 2012.  Again, the mint was forced to suspend sales.

Last time the mint ran out of silver, the silver price jumped from $34 an ounce to $49, a quick 40% rise.  Back then, the silver naysayers called it everything from a fluke to a spike to a bubble.  Today, however, the tone of the silver message is changing.  The silver shortage is growing.

You see, unlike other precious metals, Silver’s industrial demand is skyrocketing.  Silver is known to have the highest electrical and thermal conductivity of all metals.  Think about that!  Why are today’s cell phones more powerful than yesterday’s giant computers?  Silver is playing a major role in packing more power in a smaller amount of space.  And, speaking of power, did you know it is said that more than 30 pounds of silver is packed into one cruise missile?  Try and recycle that!

When it’s imperative for electrical connections to fire on command, it is silver that answers the call.  But, that’s only the beginning of the silver story.  Silver also has unique qualities as a bactericide.  You’ll find it now in everything from odor-fighting clothes to infection-fighting bandages.  Then, throw in an increased demand for solar energy, where silver is necessary for the production of solar panels, and you have the formula for rapidly increasing demand.

Still, the story is muted as the naysayers point to the fact that silver’s run to $49 an ounce was short-lived. What is undeniable, however, is the longer term performance of the metal.  In just 10 years the silver price has risen more than six-fold, outperforming even gold.  That itself is a major headline rarely seen.  And, when it is, it comes from precious metals advocates.

It seems, if a story does not make TV headlines it is not real.  And, when stories repeatedly surface from sources with a pro-metals bias, a certain level of desensitizing takes place.  That’s when you just have to focus on the facts, identify the longer trends and consider why these facts and trends are largely ignored by the majority press..

In the case of silver, where industrial demand is growing faster than silver can be mined, it would be counter-productive for industry to speak of this growing shortage.  Imagine one headline from Apple, if it is true, saying production of its new iMac was interrupted by a silver shortage.  Holy silver spike Batman!  It is estimated the new 21.5 inch iMac contains 1/10 oz. pure silver.  Multiply that by millions of units and then add tens of millions of iPads, iPods, iPhones and you can begin to see a 3D picture of piles of millions of ounces of silver needed to produce just Apple products.

As an image of enormous amounts of silver may now exist in your mind’s eye, it may still be difficult to monetize that image and realize the impact of silver’s price on any of the Apple products.  Let’s try this.  It was reported that in Q4, 2012, Apple declared a $2.65 dividend.  If the silver price doubled from where it is today, the cost of one tenth ounce of silver would rise more than three dollars.  That more than wipes out an entire quarter’s dividend per tenth ounce of silver used.  Today, Apple unit sales, of all products, is pacing about 75 million units.  Now do you get it?

Don’t expect to hear messages like this from the majority press – at least not before the news breaks that silver prices have skyrocketed.  Once the silver price does explode, you can count on a hundred geniuses coming forward to explain why.  Case in point?  The debt crisis.  A story that, prior to its breaking, was only told by the likes of metals advocates who saw debt poisoning the markets and the economy, well ahead of mainstream breaking news.  More like broken news if you ask me.

So stay tuned, watch the signs, see the big picture.  Don’t get caught up in the daily price moves.  They are meaningless in the context of long-term trends.  And, as always, never take my word for anything.  These are just my opinions and I’m no “genius.”

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