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Why Gold Skeptics Must Buy Silver

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Some folks will never buy gold, no matter the strength or duration of the metal's bull market run. Thankfully, for those who disparage gold because it clashes with their definition of utility, the "poor man's gold" waits in the wings to serve as their alternate precious-metal hedge.

Although it is incorrect to assert that gold has no industrial demand, silver does exhibit a more diverse demand profile than gold. With a one-two punch of surging investment demand and growing industrial consumption of the metal, the outlook for silver investors may shine more brilliantly than gold.

Precious-metals consultancy GFMS recently released a report, The Future of Silver Industrial Demand, which depicts a future wherein silver is patently unlikely to lose its luster. Silver is everywhere around you. It's in your car, your cell phone, your computer, and even your watch battery. Before you go and melt down your iPhone to recover its silvery treasure, however, understand that each unit may only contain some 250 milligrams. If you toss your car into a crucible, a lucky few might recover nearly one ounce of silver.

While these per-unit amounts may sound deceptively inconsequential, consider that some 1.6 billion cell phones were produced in 2010. That's 13 million ounces of silver right there. Computers stripped another 22 million ounces of supply from the market in 2010, which is roughly equivalent to Silver Wheaton's (NYSE: SLW  ) production for the year. Exploding onto the scene in recent years, silver consumption by makers of thick-film photovoltaic (PV) cells for the solar energy industry has grown from nearly imperceptible levels a decade ago, to 47 million ounces in 2010.

And then there are the new and emerging industrial uses likely to make their presence known in the coming years. Between 2010 and 2015, silver consumption by these novel applications is projected to quadruple from about 10 million ounces to more than 40 million ounces annually. Next-generation batteries, solid state lighting, water purification, medical uses, and those soon-to-be-ubiquitous radio frequency identification (RFID) tags account for some of the fastest-growing of these new applications.

All told, GFMS forecasts a 37% increase in global industrial silver demand -- from 487 million to 666 million ounces -- between 2010 and 2015. For investors who may be wary of precious metals on the basis of investment demand alone, silver's significant and expanding footprint of industrial offtake offers a second and similarly powerful driver of upward price momentum.

So by all means, skip the golden highfliers like New Gold (AMEX: NGD  ) , and promising gold juniors like Claude Resources (AMEX: CGR  ) , if you must. But to avoid missing out entirely on this incredible bull market run, I urge consideration of some silver exposure as an ideal golden compromise. Great Panther Silver (AMEX: GPL  ) remains my personal favorite in the space, while Coeur d'Alene Mines (NYSE: CDE  ) has finally regained its mojo in a very big way.

To review the recent silver report prepared by GFMS for the Silver Institute, click here. If the never-boring silver mining industry piques your Foolish curiosity, be sure to add these stocks to your free, personalized watchlist and follow all the precious news to come:

Fool contributor Christopher Barker can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He tweets. He owns shares of Claude Resources, Coeur d'Alene Mines, Great Panther Silver, New Gold, and Silver Wheaton. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (5) | Recommend This Article (29)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 03, 2011, at 7:40 PM, rudeman2k wrote:

    Christopher, What is your target price for GPL? I like what I've seen from them but was afraid I may have already missed the bus on that one.

  • Report this Comment On April 03, 2011, at 8:30 PM, NOTvuffett wrote:

    Personally I don't buy gold because it has been the source of unreasonable speculation in the past. However, I find the case for silver to be very compelling. It is an incredibly useful metal.

    I think most people would be shocked at how small the amount of silver mined on an annual basis is, I think they also could be surprised on the rate of increasing demand for the metal. Supply and demand baby.

    Silver has had an incredible run, maybe time for a pull-back. Don't miss out on future gains because you pulled the trigger too early or you didn't pull it at all.

  • Report this Comment On April 04, 2011, at 11:39 AM, XMFSinchiruna wrote:


    I intend to hold the bulk of my exposure to Great Panther at least until the stock achieves a two-digit share price, and I will likely retain some exposure for many years thereafter.

  • Report this Comment On April 04, 2011, at 10:54 PM, rudeman2k wrote:

    Thanks for the reply. I was always a precious metal naysayer until this last year. Following your commentary has opened my eyes and increased my bottom line. Thanks for the good work.

    If you ever decide to start a metals and mining fund pencil me in as a buyer.

  • Report this Comment On April 05, 2011, at 2:05 PM, SB11 wrote:

    Hi Christopher, silver and all the silver stocks (SLW, EXK) seem to be rallying right now to new all-time highs, however GPL is not (I own GPL). Any idea why this is the case?

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