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My Favorite Silver Trading ETF

Written By Brian Hicks

Posted May 27, 2011

As we expected, the price of silver is rapidly recovering after the brutal correction we experienced earlier this month.

And now, the next phase of the silver bull market looks like it will open with a healthy bang, taking prices much higher.

In today’s Wealth Daily, I’ll detail for you one of my favorite silver trades — one that I’ve personally made money with at least a dozen times in the past year.

After shedding some 31% of its value, the price of silver has bounced off its monthly low of about $33.50 an ounce.

This morning, silver prices opened around $37.50 an ounce.

may 2011 silver chart

This month’s silver sell-off puzzled many investors, especially those who truly understand the intrinsic value of the white metal and have a clear perception of its supply/demand fundamentals.

But the fact is silver was ripe for profit taking after swiftly moving from $30 to $50 an ounce in a matter of weeks.

No market goes up in a straight line, and we were due for consolidation at some point…

Nevertheless, I believe we’ll see the price of silver steadily rise throughout the rest of the year, with moderate corrections along the way.

The upward volatility will become greater as more and more investors and institutional funds wake up to the fact that they need to diversify away from the depreciating dollar.

Overall, I expect the silver prices to be closing back in the $50 level over the next few weeks as the dollar continues to wane in value. After that, I believe silver could even hit $70 an ounce by Labor Day.

World Silver Demand Facts
  • Investment demand for silver has skyrocketed 522% since 2007.
  • World governments are hoarding silver; official sales have plummeted 83% in the past three years.
  • Above-ground silver supplies dropped 86% last year.
  • Industrial demand for silver has increased over the past decade, despite a 236% increase in prices.

Investment demand will remain key to silver’s price. Higher demand will be required from investors because silver’s supply/demand fundamentals are expected to deteriorate, with an expected surge in mine production and lower fabrication demand.

And as gold prices approach $2,000 an ounce, I believe silver will be preferred by many — if not most — retail customers as a cheaper alternative that provides the level of wealth protection investors might be looking for.

Gold is moving up against all currencies worldwide. And while some may flee the dollar to go into the euro or some other fiat currency for a time, most will eventually come to both gold and silver as the only true safe haven for their savings.

Add on top of all these events the next wave of derivative problems that are soon to hit the market, and we have the making of the perfect financial storm worldwide.

Owning the physical precious metals and quality junior mining stocks is the only insurance one can have against the financial insanity that’s about to be unleashed on a worldwide basis.

Get your house in order and prepare while you still can.

Here’s one great way to do exactly that…

ProShares Ultra Silver ETF
may 2011 agq
Symbol: NYSE: AGQ
Price: $195.70

The ProShares Ultra Silver ETF (NYSE: AGQ) is designed to track double the daily market performance of silver.

The ETF seeks daily investment results that correspond to twice (or 200%) the daily performance of silver bullion, as measured by the U.S. dollar fixing price for delivery in London.

In other words, AQG is designed to increase 2% when the daily London fixed price of silver increases 1%. And of course, this works both ways: When silver prices decrease 1%, AQG is designed to lose 2%.

But this is very important…

The ProShares Ultra Silver ETF does not directly or physically hold the underlying silver bullion. Instead, the ETF seeks exposure to silver through derivatives.

Typically, I avoid investing in any kind of derivative like the plague. But the ProShares Ultra Silver ETF isn’t really an investment instrument; it’s really best used for trading.

As the price of silver retraced its steps earlier this month, I wrote to my subscribers urgently telling them these are the dip moments I have been talking about where you want to be a heavy silver buyer.

And the ProShares Ultra Silver ETF was the perfect trade.

It has already been a wild ride, but one that has brought great satisfaction to me in helping others to make money. What’s even better is that the best is yet to come for the precious metals and the mining shares.

Stay tuned, stay focused, and don’t let this bull toss you off its back. It’s kicking and bucking to knock as many of you off as possible…

Hang tight. It will be worth the ride in the end.

Good Investing,

Greg McCoach
Analyst, Wealth Daily
Investment Director, Mining Speculator and Insider Alert