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Why I'm Watching Select Silver Producers

By Frank Curzio, editor, Phase 1 Investor
Friday, May 4, 2012

Eric Sprott says silver prices will triple.
Sprott is a legend in the resource industry. Many of his clients have become wealthy listening to his advice. He told them to buy gold about 10 years ago, for example, when the price was $250 an ounce. Today, gold trades over $1,600 an ounce, or 540% higher.
Over the past few years, Sprott has turned his attention to silver. He says it's "the investment of the decade." 
As you can see from the chart below, Sprott's forecast looked spot-on in early 2011. Silver prices pushed near $50 an ounce, halfway to his $100 price target.
However, silver prices have pulled back sharply since then. The metal is down more than 40% off its highs. It's trading below its 200-day moving average (DMA), a simple trend indicator. That suggests the recent downward trend since March will continue.
Silver is not selling off because of weak fundamentals. Here's what Sprott has to say about silver's supply and demand metrics: 
Annual production is about 900 million ounces per year, including recycling. Industrial usage alone will rise to 660 million ounces by 2015. That leaves only 240 million ounces for coinage, central bank purchases, and investment.
And right now, coinage is surging. Data released by the U.S. Mint in February shows that silver coins have outpaced sales of gold coins more than 50 times over. In fact, according to several leading precious metal dealers, dollar sales of silver and gold reached parity for the first time in history.
I expect industrial usage to increase as well. Silver can be found in many electronic products, like mobile phones and computers. This industry is booming right now (just take a look at Apple's results). These devices have short life cycles. That means they need to be replaced every 18 months or so.
My advice is to start taking a look at the silver producers. Companies like Fortuna Silver, Silver Standard, and Endeavor Silver are down between 20% and 40% over the past three months. They are trading at historical low valuations.
These companies are low-cost producers. More important, they are expected to increase silver production by more than 30% by 2013.
Buying these companies could mean huge returns if silver prices maintain the $30 an ounce level. If Sprott is right and silver prices begin pushing toward $100 an ounce, these companies could go up several hundred percent from these depressed levels.
Good investing, 
Frank Curzio

Further Reading:

Doc Eifrig recently told DailyWealth readers about a unique approach to precious metal investing... one that can "help you build a 'bulletproof' portfolio able to prosper in both boom times and crisis times." Learn more about it here: The Sensible, Low-Stress Way to Own Gold and Silver.
In January, Jeff Clark shared his plan for how to trade silver this year. "There are a lot of 'ifs' in this scenario," he wrote. But if it plays out like he expects, silver will see huge gains later this year. Get the details here.

In The Daily Crux
Market Notes
Crude oil is in negative territory over the past few months... prices are down about 7% from their February highs.
Gold prices are in a long "sideways" trend... prices are sitting exactly where they were more than seven months ago.
"Safe money" names continue their slow and steady uptrend... Microsoft, Intel, and Coca-Cola are up around 20% in six months.  
China Mobile is ignoring worries about China's economy... shares break out to a three-year high.
Market Watch
Symbol Price
S&P 500 1391.57 -0.8% +2.6%
Oil (USO) 38.83 -2.7% -11.9%
Gold (GLD) 158.97 -1.0% +6.1%
Silver (SLV) 29.29 -1.7% -27.8%
U.S. Dollar 79.20 +0.1% +8.5%
Euro 1.31 -0.1% -11.3%
Volatility (^VIX) 17.56 +4.0% +5.2%
Gold Stocks (^HUI) 419.98 -3.9% -24.2%
10-Year Yield 1.92 +0.0% -41.1%

World ETFs
Symbol Price
USA (SPY) 139.25 -0.8% +4.8%
Singapore (EWS) 12.98 -1.1% -4.7%
S. Africa (EZA) 68.15 -0.9% -5.7%
Japan (EWJ) 9.51 -0.8% -8.1%
Lat.America (ILF) 45.54 -0.5% -10.6%
S. Korea (EWY) 59.50 -0.5% -11.7%
China (FXI) 37.92 -1.0% -13.2%
Taiwan (EWT) 13.06 -0.4% -13.3%
Canada (EWC) 27.68 -2.1% -14.8%
Israel (ISL) 13.55 -0.1% -17.9%
India (IFN) 20.75 -1.8% -29.3%
Russia (TRF) 15.80 -0.4% -29.5%

Sector ETFs
Symbol Price
Retail (PMR) 26.29 -0.8% +22.1%
Big Tech (QQQQ) 66.35 -1.1% +14.1%
Big Pharma (PPH) 73.61 +0.6% +14.1%
Consumer Svcs (IYC) 82.05 -0.7% +13.0%
Utilities (XLU) 35.52 -0.3% +9.8%
Real Estate (IYR) 64.15 -0.3% +8.0%
Health Care (IYH) 77.87 -0.5% +7.0%
Construction (PKB) 14.02 -2.0% +1.7%
Software (PSJ) 26.82 -1.1% -1.0%
Industrials (IYJ) 70.36 -1.0% -1.4%
Financials (IYF) 57.38 -0.9% -2.0%
Defense (PPA) 19.79 -0.9% -2.4%
Insurance (PIC) 16.17 -1.5% -3.2%
Transportation (IYT) 94.24 -0.9% -3.5%
Internet (HHH) 70.21 +0.1% -3.8%
Media (PBS) 14.70 -1.2% -4.0%
Biotech (PBE) 21.94 -1.3% -4.9%
Water (PHO) 18.67 -0.9% -5.6%
Telecom (IYZ) 21.90 -0.1% -8.6%
Semis (PSI) 15.77 -1.0% -10.4%
Oil Service (OIH) 121.00 +2.4% -11.4%
Basic Mat (IYM) 69.03 -1.4% -14.1%
Nanotech (PXN) 6.38 -0.9% -32.2%
Alt. Energy (PBW) 5.01 -2.3% -48.9%

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