WHY BUY SILVER? UP-DATE
N° 18 / February 16, 2007
Peter Zihlmann
Silverinstitute
DO SILVER SHARES STILL OFFER AN EXCELLENT BUYING OPPORTUNITY?
1981 to 2005: This bull has a long way to go!
Silver inventories have fallen to historic low levels - yet markets were very slow in responding. If the supply and demand picture does not dramatically improve - which is improbable - the silver price will likely trend higher - possibly towards the high of 1980.
The long-term picture of the silver price
The silver price is well-established in its up-trend which started in October 2001 and accelerated from July 2003 onward to reach $8.20 by April 2004 when massive profit-taking pushed it down to the $5.50 level at which a clear buying opportunity emerged.
By fall, the silver price was back to $8 only to succumb to profit-taking once more. It fell back to the up-trend-line (EMA(50) weekly) and another buying-opportunity was presented.
After hitting a high of $14.94 in May 2006, another round of profit-taking unfolded, pushing the silver price down to $9.69 for a loss of 55% in a matter of a few weeks.
Nevertheless, the silver price simply fell back into the long-term up-trend from where it has moved consistently higher. This consolidation phase is drawing to its conclusion - in our opinion.
We suspect that we may soon enter a new phase of sustained buying which could lift the silver price towards $20 or higher during the coming months.
The medium-term picture of the silver price
The medium-term picture reveals a symmetrical triangle. Research has shown that symmetrical triangles overwhelmingly resolve themselves in the direction of the trend.
Symmetrical triangles can be characterized as areas of indecision. We would however say that at this stage, the "time of indecision" is likely coming to an end soon.
Some of our favourite silver shares
(%-value changes reflect the performance since our first recommendation.)
We have recommended and held/or hold above silver shares and, as easily can be seen, they have performed well. Many of them, even after having risen substantially, still offer good value and promise more capital gains.
While you may receive future recommendations registering at register@pzim.ch , you may prefer to buy one of our Funds, either THE TIMELESS PRECIOUS METAL FUND (+61% in 2006) or THE SIERRA MADRE GOLD & SILVER VENTURE FUND, a Fund that only invests in Mexico - with Peru the biggest silver producers of the world.
Fundamental Considerations: THE RISING SILVER DEMAND
Silver is unique. Its natural beauty is legendary. Its range of applications is exceptionally broad. As a precious metal, it has been a source of human adornment since the beginning of time. As a principal component of fine tableware, appropriately called silverware, it has served as an important utensil for fine dining for centuries. As a light-sensitive element, it has revolutionized preservation of memories in the form of photographic images. More recently, its unique properties comprising of anti-bacterial qualities, corrosion resistance, malleability, ductility, reflectivity and conductivity have opened new possibilities for a myriad of other industrial applications.
Supply versus Demand
Over the past ten years, supply of silver (mine production and silver scrap) has increased by 26% while demand (total fabrication) expanded only by close to 10%.
While estimated total silver bullion inventories have fallen dramatically over the past ten years, the decline will likely be a lot less spectacular as the flattening curve above also suggests.
Mine production will most likely increase more rapidly as the demand through industrial applications.
Silver possesses exceptional qualities:
Silver reflects! The film coating on mirror backings is silver. Mirrors are used in telescopes, microscopes, spacecraft and solar panels, as well as bathrooms! Don't forget the silver transparent coating on double-pane thermal windows.
Silver conducts heat! Those silver ceramic lines fired into your car's rear window keep the window clear of frost and ice.
Silver conducts electricity! Silver is the metal of choice for switch contacts because it does not corrode. Every time you start your microwave, dishwasher, television set, car engine, etc., silver contacts complete the electrical circuit. The same thing happens when you tap the keys of your computer keyboard, adjust your car's power seats, or release the power trunk lock. Silver is there.
Silver kills bacteria! Silver chemically affects the cell membranes of bacteria, causing them to break down. Bacteria do not develop resistance to silver, as they do to many antibiotics. Silver solutions are used in burn treatments. Silver gauze packs the wounds of patients during transport to medical facilities. Silver nitrate drops are used to clean the eyes of newborns. Hikers use portable silver-based water purification systems for drinking water.
Silver rings! Silver has a pure acoustic resonance and is preferred by musicians for making high quality silver bells and musical instruments.
Silver captures images! Silver salts are the basic image capture and forming materials in photography. Every picture of your sweet little darling contains silver, as well as medical/dental x-rays and your favourite movie.
Silver is pretty! Don't forget the silver in your jewellery or traditional tableware. It's a favourite medium because it is soft and malleable, and can be shaped into any form. Silver has been used in cherished heirlooms and gifts for centuries.
Silver and Commodities
It may also come as a surprise to many that silver and commodities (including energy) have moved in tandem since 2001 suggesting that indeed we are in a commodity bull market which may last many years as some knowledgeable and respected experts have forecast.
The recommendations were valid at the time of writing, viz. at
and may no longer be valid at the time of reading.
Peter Zihlmann
www.pzim.com
www.timeless-gold.com
invest@pzim.ch
Tel.+41 44 268 51 10
Mobile +41 79 379 51 57
February 17, 2007
P. ZIHLMANN INVESTMENT MANAGEMENT AG
is a shareholder in the company and will benefit from any increase in the company's share price.
Disclosure: The author has not been paid to write this article, nor has he
received any other inducement to do so. The author is a shareholder in the
company and will benefit from any increase in the company's share price.
Disclaimer: The author's objective in writing this article is to invoke an
interest on the part of potential investors in this stock to the point where
they are encouraged to conduct their own further diligent research. Neither
the information, nor the opinions expressed should be construed as a
solicitation to buy or sell this stock. Investors are recommended to obtain
the advice of a qualified investment advisor before entering into any transactions
in the stock.
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