Savers eager to beat inflation trade their cash for silver

Oct 08, 2010

By Tim Grant, Pittsburgh Post-Gazette  

Blaine Shiff tells the story of a gray-haired man who recently walked into his coinshop in Dormont and dramatically dropped a pile of cash on the front counter saying, "I want out of paper and promises. I want to trade this Monopoly money for some real money."

While most customers are far less animated, Mr. Shiff said the sentiment is the main reason his business is steadily growing.

But lately, he has seen a noticeable change in customers' buying patterns. As the price of gold has reached a record of more than $1,350 an ounce and silver has hit a 30-year high of more than $23 an ounce, buyers are shifting their attention from gold to silver.

"People are seeing the train pull out of the station," Mr. Shiff said. "They want to get on the train and they can't afford gold. Silver is a way to get on the train."

Commonly referred to as the poor man's gold, silver has been used as a form of currency since the dawn of civilization. These days, much of silver's demand comes from industries that turn the metal into an astonishing variety of products.

Silver is used in jewelry, silverware, electronics, batteries and even in the solar power industry. And new uses for silver are being found, including its medical use in effectively destroying the cell walls of bacteria, fungi and other microbes.

The price of silver peaked in 1980 at about $50 an ounce when billionaire brothers Nelson and William Hunt tried to corner the market. When their plan failed, the brothers lost their fortune and the price of silver crashed to about $4 an ounce and remained in a long deep slump until the mid 1990s.

"Silver has demand from investors and industrial use. Those two things added together gives silver an extra boost," said Chuck Butler, president of Everbank World Markets in St. Louis. "There's no guarantee it won't crash, but you have to look at the fundamentals in the marketplace today.

"Our economy is dragging along, unemployment is high and the national deficit is growing," Mr. Butler said. "People are rushing to commodities to protect themselves from inflation. The fundamentals for gold and silver are good going forward."

Adrian Ash, head of research for Bullion Vault in London, said his company now holds about $1 billion worth of gold and silver for customers who want to own the metals but do not want the responsibility of storing it.

"The 30-year high is interesting just on the pricepoint alone," Mr. Ash said. "We are still far from an all-time high in silver. Gold is at an all-time high and people are very familiar with the gold story. Silver is part of the gold story broadening."

Demand for silver is so strong, even the U.S. mint is having trouble getting enough to meet demand for its popular one-ounce American silver eagle coins. As recently as 2008, the mint actually stopped producing the coins because of problems with silver supply.

"I think we will see $40 an ounce silver in the next three years," said James Digeorgia, editor and publisher of the Gold & Energy Advisor in Boca Raton, Fla. "Silver is a way to play the precious metals market without shelling out $1,300 for gold."

Gregory Marshall, CEO of Global Asset Management, a precious metals wholesaler based in Hollywood, Fla., said gold is already beyond the point of affordability for most Americans.

"Silver is probably the most undervalued commodity there is," said Mr. Marshall," who also is author of the book "Good As Gold: Protecting Your Financial Future With Precious Metals."

"Gold will have to go to $2,600 to double," he said. "But $50 silver is very easy to imagine. I can easily see $50 to $100 an ounce silver. We will look back on today's silver prices as being very cheap."

If silver has a weakness, it is that industrial demand for the metal will decrease if the global economy goes sour.

Another key factor that could undermine silver's rising prices, according to Eric Ross, owner of a precious metals refinery in New York, is a stock market crash.

"Silver would go down, but it would only be temporary," said Mr. Ross, who added that gold and silver prices are a barometer of the health of the economy. "Silver would continue its upward trajectory as long as the government continues its spending and accumulation of deficit. High inflation also will cause silver to go up."

Anytime an asset class appreciates as fast and furiously as gold and silver has in recent years, there's always some concern that it could be a bubble ready to pop at anytime.

David Morgan, publisher of the Morgan Report on precious metals, doesn't think silver is in a bubble, although it may be a bit overextended on a short-term basis. At worse, he thinks the price may temporarily dip below $20 an ounce.

"This is far from a bubble," Mr. Morgan said. "If you look at this in terms of other bubbles, like technology stocks and housing, those were at least 1,000 to 2,000 percent gains from bottom to top. Gold is only up four-fold and silver is only up five-fold.

"To be equal to what $50 an ounce was in 1980, we'd have to be at $130 per ounce silver right now. We still have a long way to go."

Post Gazzette

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