Not only can silver provide a hedge provide a hedge against inflation, it also helps you add asset allocation and diversification to your portfolio, owning silver is easy, convenient and affordable, and thanks to the US governments pro-inflation policies, it’s going to be much more valuable in the near future.

This from Investors Daily Edges’  Ted Peroulakis:

I’m bullish on precious metals in general and silver is a nice compliment to your gold holdings.

Now keep in mind that silver can be quite volatile as industrial demand fluctuates. Silver often tracks gold prices although the ratio can vary.

I suggest you hold silver in your portfolio and here are some common ways to invest in silver:

Buy Silver Bars

An established way of investing in silver is by purchasing actual bullion bars. Physical silver can be stored in your home safe or at a bank safety deposit box. You can even have a dealer store your silver for you.

Buy Silver Coins

Buying silver coins is another easy way of physically holding silver. For instance, you can just buy American Silver Eagle bullion coins or Canadian Silver Maple Leaf coins.

Buy Options and Futures Contracts on Silver

Silver options and futures, currently trade on a number of exchanges around the world. Using options and futures as an investment strategy is usually reserved for the more experienced investor because this type of trading is quite speculative. You could multiply your potential profit several fold, giving you huge leverage on silver by investing in options and futures.

Buy Silver Mining Companies

Many investors buy silver mining stocks. Silver mining companies are leveraged to the price of silver and since they have millions of ounces of silver, every time the price of silver goes up, the value of their reserves increases. As the price of silver rises, the stock price should rise along with it. Some investors prefer to diversify by investing in precious metal mining mutual funds.

Buy Silver Exchange-Traded Funds

Silver Exchange-Traded Funds represent a quick and easy way for an investor to invest in silver. ETFs are a liquid, cost effective and a secure way to invest in silver. My favorite is the iShares Silver Trust (SLV). I see tremendous upside with this silver investment.

Source: Invest in Silver!

The most interesting news item recently was found on the cover of the Financial Times newspaper, where we learn that a guy named Lahde “made tens of millions of dollars from betting against the financial and property sectors during [the] past two years”, and he now wanted to thank “the low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA” who made it all possible for him to find enough suckers.

He noted that “These people who were often truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG (NYSE:AIG), Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the aristocracy,” he says, “only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America.”

This goes along with an article in the St. Petersburg Times about Tom James, chairman and chief executive of Raymond, James Financial, who had “some tough words for the wizards of Washington, D.C. who oversaw the recent $700-billion bailout package”.

He reports that “The Brave And Wonderful Mogambo (BAWM) was right all along! Those government weenies are the biggest freaking morons you ever saw, and we as a country should be ashamed of ourselves for having elected such corrupt, half-witted, utter failures and congenital idiots!”

As you have probably guessed by now, he did not say those exact words, but he implied every syllable when he said, “Legislators were almost embarrassingly ignorant of how the financial system works”, which I figure explains how they don’t understand the linkage between their own Bad, Bad Performance (BBP) as legislators and the subsequent Bad, Bad Performance (BBP) of the economy, and he says that only 3 of 16 legislators that he talked to actually understood what was going on in the “credit crisis.” Less than 20%! Hahaha! We’re doomed!

Well, maybe these Congressional losers will understand the unfolding economic slowdown, as evidenced by the Baltic Dry Index, which is an index of the cost to transport stuff by cargo ship, and which has fallen precipitously, which seems very important to me, and to Junior Mogambo Ranger (JMR) Riccardo, too, who is also alarmed by this like – as I previously said – me.

It’s actually beyond scary, in a terrifying kind of “ain’t nobody buying nothing in a consumer economy” kind of way, which means that without the consumer buying stuff as his or her contribution to the famous statistic of “the consumer is 70% of the economy”, we are, in case you ain’t heard, freaking doomed if the consumer ain’t buying!

Well, maybe not all buying is drying up, as Ted Butler, silver market analyst, reports that in the last 10 months, “some 150 million ounces of silver can easily be documented to have been bought by investors. Undocumented purchases would add tens of millions more ounces.”

In fact, when you add it all up, “Investment demand for silver this year is running at a full 25% of world mine production and over 20% of total production (including recycling). This is a remarkable historical turnabout.”

Thus, it is easy to see why Mr. Butler is “bullish beyond belief for silver”, since this kind of demand means that “In silver, the documented 150 million ounces bought in the first ten months of this year is equal to 15% of all the silver bullion equivalent thought to exist!” Wow!

More than one-seventh of all the silver bullion “thought to exist” in the whole world was suddenly bought up in less than a year, and yet the price of silver has been pounded down to less than 10 bucks an ounce? No wonder I am so bullish on silver!

He also notes that the gold/silver ratio is at more than 80, which is “one of the biggest differences in history.”

And not only that, but since there are 4 to 5 billion ounces of gold in the world versus only 1 billion ounces of silver, that means that “the total dollar value of all the gold in the world is worth 300 to 400 times more than all the silver in the world (80 times 4 or 5)”.

In dollars and cents, the dollar value of all the gold in the world is about $4 trillion, while the value of all the silver in the world is but a laughably low $10 billion! Where do YOU think the most profit potential lies? Me, too! Hey! This investing stuff is easy! Whee!

Source: A Bull in a Silver Shop

They either weren’t trying very hard, or this was this best they could do…which wasn’t a lot. Gold was off about $15 from it’s 3:00 a.m. peak, but silver recovered a lot of its losses…such as they were. I wouldn’t read a lot into Thursday’s activity until we have a few more trading days under our belts and a short-term pattern develops.

Open interest numbers for Wednesday’s trading are unusual. Gold o.i. dropped a hefty 13,808 contracts. In a conversation with Ted Butler, he advised me that most of this was lifting of a bunch of butterfly spreads. When spreads are closed out, both a long and a short are extinguished, and o.i. naturally falls. And despite a 20-cent rise in the price of silver on Wednesday, o.i. actually dropped by 228 contracts. With first day notice a week from today, there will be lots of activity as traders either close out their positions or switch them to future months. One would hope that next week’s COT report should have all this current activity in it.

But despite all these changes in open interest and the rise and fall of the silver and gold prices, don’t forget that ‘8 or less’ traders are short 75+% of the entire Comex market in both these metals. As Ted Butler said in his latest commentary…”They are, quite literally, the biggest fish in the smallest pond in financial history. They are trapped. Their motive couldn’t be more simple, or compelling – they are postponing delivering actual silver because it doesn’t exist and delaying buying back their short positions because to do so will destroy them financially.” And that, dear readers, is the current situation in a nutshell. A clearer picture could not be painted. It boggles the mind that some people just can’t understand something this simple…but there are lots of them out there.

Here’s a look at the current silver chart…and the gold chart is identical. Are the boys trying to engineer a top here…paint the charts? If they are, it wouldn’t be the first time that a big rally to the upside ‘failed’ under mysterious circumstances right after the 50-day moving averages were breached to the upside…and long before the RSI flashed any kind of oversold signal. As I said yesterday, they can pull the lever any time them want, despite the number of mice (tech longs) they’ve got in the trap. The silver chart is linked here.

I see in a miningweekly.com article that “Gold Fields Ltd, the world’s No. 4 gold producer, has cut its gold output forecast for this year by 15 percent, because of power shortages in South Africa.”
The company now expects to produce about 3.6-million ounces of gold, down from a previous target of 4.25-million ounces.
“We’re probably going to miss (the target) by about half a million ounces,” Gold Fields CEO Nick Holland told Reuters at a gold conference in Peru. “I suspect we’re going to be 3.6 … something like that.” I’m sure that GF won’t be the only SA company ‘fessing up’ this year.
In the news department today, it was another embarrassment of riches. We’ve all heard the expression “How to win friends and influence people”…or the Einstein quote about the universe, hydrogen and human stupidity. This Reuters story is exactly like that, and is entitled “House Passes bill to sue OPEC over oil price.” I couldn’t believe it either…but the link is here, so fill yer boots!

The second story drags corporate debt default kicking and screaming into the naked light of day. This Bloomberg story points out that defaults so far this year have already surpassed all the corporate debt defaults from 2007…and we aren’t even half way through the year yet. I expect this trend to accelerate. The headline reads “Corporate Defaults Reach 28, Exceeding Total for 2007″…and the story is linked here.

And in closing, I see that Jefferson County in Alabama is having some serious problems in the credit market. This story surfaced earlier this year, but now it has turned really ugly. There are some unbelievable creepy-crawlies coming out of the woodwork down there, and I’ll have that story tomorrow.

Today is Friday. Expect anything…and all of us at Casey’s Daily Resource Plus will be here to discuss it Saturday morning.

And to all my American readers…I hope you have a happy and safe Memorial Day long weekend.

Casey Research correspondent-at-large Ed Steer is a keen observer of the financial scene and a board member of GATA.org.

Source: And Then There’s This…Friday, May 23rd, 2008