If you're easily shaken up by volatility, you might as well just get out of the precious metals market altogether...
Go put your money in some bonds and call it a day.
The truth is you'll need a strong backbone and a good amount of faith to play in this space.
Entire fortunes have been lost here... but they’ve also been made.
If you're patient, it's pretty much certain you'll come out a winner.
I've been quietly waiting for silver to hit a floor this year, and it looks like we're finally there.
We’re seeing a major discount in prices — a decline that has been steady over the past four years. Let’s be completely honest here: the S&P GSCI is showing the lowest levels since 2002.
Jodie Gunzberg, Global Head of Commodities at S&P Dow Jones Indices, released a statement earlier this week:
Thus far, July 2015 is the seventh worst performing month in the history of the S&P GSCI that goes back to January 1970. It is one of the worst months in more than 45 years, or 547 months.
Most investors would read that and run.
But at the same time, there are several global catalysts that will have a positive impact on silver pricing in the near future.
Below, I'll share these catalysts (and plays) with you.
As other investors flee from commodities, you’ll be maximizing silver’s impending comeback.
Reasons to Buy Silver Now
Catalyst 1: Manufacturing & Alternative Energy Demand
Unlike gold, silver has a wide range of applications. It is found in jewelry, electronics, batteries, mirrors, solar energy, and water purification, just to name a few.
Industrial applications for silver make up more than half of global silver consumption, and a rebound in global manufacturing is going to drive up demand.
The JPMorgan Global Manufacturing PMI has indicated growth for 17 consecutive months, despite an overall slowdown in Asia. The eurozone hasn't fared as well lately, but new orders are coming in quickly, and stocks have run down for their third month in a row.
According to a report by Thomson Reuters, silver industrial demand will rise to record highs in 2015, increasing by 5% and accounting for approximately 60% of total silver fabrication.
In the United States, imports of silver jewelry rose by 11% between January and May of this year.
However, I would argue that the greatest opportunity for silver growth is through renewable energy — solar in particular.
Silver is the primary ingredient in photovoltaic cells, which are essential in transforming sunlight into energy. Globally, over 100 million ounces of silver are projected to be used in photovoltaic cells throughout 2015.
Solar panel installations in the U.S. increased by over 75% in the first quarter of this year alone.
Both India and China have committed to aggressive alternative energy policies, and this has led analysts to expect even further increase in silver demand.
Solar panels alone will account for an 8% growth in demand (65 million ounces) overall.
Catalyst 2: The India Indicator
India is the single-largest consumer of bullion in the world, so it pays to keep an eye on the nation's silver habits. Silver is so engrained in Indian culture that the national currency, the rupee, actually has linguistic roots to the Sanskrit word for “silver.”
Silver jewelry is essential for a number of Indian ceremonies, particularly weddings. Toe rings and other silver jewelry have proven to be critical factors in global silver demand.
Last year, jewelry demand alone boosted India’s silver use by 47% to record tonnage. The jewelry market pushed India to the top of consumer rankings, overtaking China.
In the first quarter of this year, India imported a record amount of almost 3,000 mt of silver. That’s roughly 30% more than the imports of 2014.
If the nation stays on this track, Indian silver imports in 2015 will account for a third of the entire world's supply.
Catalyst 3: Smart Money is Stocking Up
In the first quarter of 2015, silver ETF holdings increased by 4.7 million ounces, conveying a hopeful outlook for the price of silver in the long-term.
This is incredibly important because it shows us what smart money thinks is happening in the market.
When some of the smartest money in silver is buying up vast amounts of the precious metal, we have a strong indicator that prices are bottoming out.
Right now, JP Morgan has the biggest stockpile of silver the world has ever seen. The financial firm increased silver stores from 5 million ounces in 2012 to 55 million physical ounces now.
The last time this particular fund bought close to that much bullion, the price of silver nearly doubled in the following nine months.
With silver near a bottom, now is the time to put your money into the pot.
Historically, exposure to silver has been quite complex, but with the advent of precious metal ETFs, it's gotten a whole lot easier...
Simple Silver Investing
Mines are subject to the impacts of low silver prices. The current price of $14.65 is well below the breakeven point for most, which leads to operation scalebacks or, in some cases, closures.
For a small fee, ETFs are by far the simplest ways to invest in silver.
Though it's not the same as buying and selling physical silver, these funds consistently correspond with market pricing and remove the many complications of bullion investing.
Unlike buying physical bullion, ETF investors are not subject to paying commissions or storage fees when acquiring silver and gold. Instead, they are subject to small expense ratios, which are often trumped by the enormous gains these funds can bring to your portfolio.
The ETF I'm going to recommend below has an expense ratio of 0.05%, which could be considered quite hefty. However, this fund most accurately reflects silver pricing and provides a level of convenience and simplicity that is worth the fee.
iShares Silver Trust (NYSE: SLV) is an ETF that seeks to reflect the price of silver owned by the trust. The company does this by matching its total shares outstanding with its total ounces of silver — approximately 0.97 ounces of silver per available share.
SLV holds more than 10,620 tons of silver, making it by far the largest silver ETF on the market.
Not surprisingly, SLV is the most widely traded physically backed silver offering, giving you a healthy level of liquidity. Despite a 7% loss over the past few weeks, the trust has added over $50 million in new assets this month alone.
Double and Triple Leverage
If silver is at a bottom, there is no better way to profit than from leveraged ETFs. This is because they are structured to amplify the returns of chosen benchmarks.
I must give you fair warning, though: Leveraged ETFs are not for the faint of heart — especially in an already-volatile silver market...
Because these funds are designed to amplify returns, they will amplify losses as well.
That being said, your positioning in leveraged ETFs will depend on your tolerance for risk.
If you're going to invest in silver defensively, stick with a non-leveraged fund like SLV.
If you like to take the bull by the horns, however, the following two ETFs will maximize your gains:
ProShares Ultra Silver (NYSE: AGQ) seeks to provide investment results that double the daily performance of silver bullion, as measured by the U.S. dollar fixing price.
The fund uses swap agreements, futures, options, and forward contracts to leverage its holdings.
You personally don't have to worry about how the leveraging is accomplished — only how successful that leveraging has been.
To get an idea of how effective leveraging silver can be, consider this: From the start of 2009 to April 2011, the iShares Silver Trust was up 300%; yet in the same time frame, AGQ gained an astonishing 1,000%.
For an even higher amount of leverage, look no further than VelocityShares 3x Long Silver ETN (NYSE: USLV).
This fund seeks to replicate three times the S&P GSCI Silver index ER by using futures contracts. It has done a solid job of accomplishing just that since its inception in late 2011.
USLV is down 86% since its birth into a bearish silver market, as a result of its 3x leveraging.
The stock has recently double-bottomed at around $13.00, and chart patterns are affirming a bullish trend reversal.
With silver ready to rebound, the upside to USLV right now is simply massive.