David Morgan is a widely recognized analyst in the silver industry and consults for hedge funds, high net worth investors, mining companies, depositories and bullion dealers. He is the publisher of The Morgan Report on Money, Metals and Mining, author of "Get the Skinny On Silver Investing" (Morgan James Publishing, 2009), and featured speaker at investment conferences in North America, Europe and Asia.
No one likes to be a prophet of doom, but the simple truth is that silver is the world’s money of last resort. Should a severe economic collapse occur, leaving paper assets worthless, silver will be primary currency for purchase of goods and services. (Gold will be a store of major wealth, but will be priced too high for day-to-day use.) Thus, every investor should own some physical silver-and store a portion of it where it’s accessible in an emergency.
2. Start small- keep it simple.
Too many investors, upon deciding to beef up the metals portion of their portfolio, buy too much physical silver at once-and in the wrong forms. Beginning metals investors should concentrate on pure bullion bars or coins, in smaller sizes, looking to pay a minimum premium over the actual metal value. Avoid commemorative coins, decorative items, jewelry and other collectibles, all of which carry large premiums and have limited resale markets.
3. Boost the buying power of your dollars with mining shares.
If you are a typical investor, you cannot expect to be an expert on silver and the silver market- but you can invest in the people who are. Once you have established a core holding of physical silver, leverage both your knowledge and your buying power by purchasing the stocks of mining companies. These shares are highly responsive to changes in silver prices, frequently producing much higher percentage returns than the metal itself.
4. Dollar – cost average to lower your costs – and increase your discipline.
Dollar-cost averaging is an ideal way to implement Rule 2. By making same-dollar purchases at regular time intervals, you wind up buying more metal when prices are low and less when they are high. This approach helps you develop discipline, erasing the “trader’ mentality that infects many market participants and instead fostering an “investment” philosophy. Dollar-cost averaging also eases some of the sting when prices move against you, allowing you to view the downturn as an improved buying opportunity rather than a disappointing loss.
5. Do not get a raw deal from your dealer.
Because of the specialized nature of the physical metals markets, selection of a well established dealer with a quality reputation is essential. A good dealer will provide timely executation of your trades at fair prices with reasonable fees. Note, as well, that the lowest price is not necessarily the best price. In the past, some dealers who squeezed their price margins too low in order to attract clients were unable to make delivery, leaving those clients holding the bag.
6. What’s yours is yours – so keep it that way.
While it is wise to keep some of your silver where you can get to it easily, it is also important to keep the bulk of your metal in a safe place- especially as you holdings increase. However, if you establish an account with a brokerage warehouse or other public storage facility, you should make sure your holdings are kept segregated and that you can inspect them when you wish.
7. Silver speculation’s like cough syrup- good in small doses, but too much can make your portfolio sick.
Depending on your individual goals and our personal tolerance for risk, a small portion of the assets you commit to silver can be used for speculation, perhaps in futures contracts or options on futures. Never forget, however, that this type of trading is speculation, NOT investment.
8. A little information can mean a lot more dollars.
You do not need to be a student of the silver market to profit from your metals investments. However, you will greatly increase your chances of success-and the size of your potential profits-if you understand the fundamental factors that drive silver prices and pay regular attention to current supply and demand considerations.
9. Collecting silver is an art- but not really an investment.
Owning fine silver items- including rare coins – can provide great enjoyment and personal satisfaction. Like paintings and other artworks, they are beautiful and often quite valuable-and, if you are astute at buying and selling, they can generate large profits. In spite of this, however, always view such holdings as collectibles, NOT as investments. When you need your silver-or simply want to cash in- you do not want to have difficulty selling or be forced to forfeit a large aesthetic premium, both of which are likely with silver rarities.
10. More than 10 percent is too much of a good thing.
No matter how good the market looks-or how worried you are about the future of civilized society-you must always remember that silver should make up only a small portion of a well-diversified portfolio. I recommend committing no more than 10 percent of the average portfolio to silver-regardless of how strong you feel about the potential of the metals markets.
As printed in The Book of Investing Rules pages 301-303
Note: Under the current economic conditions, I feel 20-25% is more appropriate, than the original 10 percent per the book global-investor book of investing rules pages 301-303. At the time the book was published the economic conditions were more stable but now that the world is in a war environment the higher allocation is necessary!
Questions to David
From TopStocks Members
Q. Hi David
Im an investor with IndoChine Mining who are developing the Mt Kare Gold/Silver project.
They have a JORC 20Million ounces of Silver at 22 Grams Per Ton.
My question is, what would have to occur for the Silver/Gold price ratio will fall from the current 59 to 20-30?
We will need to see the next leg up in the precious metals.
Since silver is a smaller market and more affordable it will narrow the
ratio. Which means this will most likely take place. Do not expect this to
happen until we are near the end of the cycle probably the late part of 2015
Buying Silver -Keep it simple
Q. what is the simplest or best way of buying physical silver?
If you are in the U.S. or Canada the easiest method is to go to www.Silver123.net and set up an account. This will take about ten minutes and follows one of the main "rules" I set forth in the white paper... Ten Rules of Silver Investing.
If not, then over the counter is best, and if that does not work you can write us at email@example.com and give us more information. We will do our best to helpl.
Q. I'm keen to buy precious metals - especially silver. However, I'm concerned about security. Even if I use a secure depository, how can I be sure my silver will be there if everything goes belly up?
Also, can I transport silver or gold across National boundaries without having to declare it?
If I store it at my home, I might be putting myself and my family at physical risk.
They may-- No one knows of course, but it is likely that both gold and silver will get hit. Silver most likely more so since it is easier to move around because it is a smaller market, which means buying and selling pressure influence the price at a greater percentage and there seems to still be an effort from the silver bears to keep the lid on.
Tough call, silver is such a small market and can move UP and Down so quickly. I doubt 50 is in the cards, unless we see a big problem. There are several but to list a couple
1. Failure in the Eruo Zone--Greece, Italy, take your pick
2. Failure of US Debt limit
If either (or both?) of those were to take place then silver would probably blow by the 50 mark. And more and more people are waking up to the fact that there is no way out. All the "fixes" just move the problem forward in time. But we are running out of time.
Three Month Outlook For Silver
Q. We have Silver positive for futures market today. There is a $US rally that is around the bend, if the EU have bad news, only stopped by China. With this, when do you feel that the SLV (physical) will get into its new band of $50> With the US's spending $3 for every $1 is taken, makes SLV a wealth preservation, and is recognized by the everyday person, Other than the few.
Always prefer the real thing (physical silver) over any ETF. If you already have a good amount of physical then an ETF is OK...
Silver Saver is for US and soon Canadians not available for down under, at least not yet.
Look over the Ten Rules of Silver Investing--
It may help you decide on the form of silver that is best for you.
Hedged Vs Unhedged
Q. All other things being equal, would you prefer a company that makes a concerted effort to lock in their future mining production or not? Obviously the price exposure works both ways but if you had to invest in just one company - would it be one that made an effort to hedge at the right price (what they consider the right price to be?)
Thanks David - huge fan of yours and subscribed to your service as well.
We have sought cash rich, unhedged mining companies. However, if a primary silver producer hedges their lead, or zinc, or even copper I do not have a huge problem with that.
Our wish is that that do not hedge any silver. That is the preference--
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