Why Invest in Silver

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Stock Markets, Crude Oil and Silver

Stock Markets, Crude Oil and Silver.

Recently, I read an article dated in early Dec 2006 that predicted that the US stock market will crash in a matter of less than a month! According to the author, the DOW would plummet to 8000 points by the end of 2006! Read it again…. The DOW has now crossed the psychological and unprecedented level of 12000 points! Imagine! The DOW crashed by 4000 points in less than 4 weeks!!!

Well, most of us would become very nervous when the DOW dropped by a hundred points within a day. Our losses incurred in that one day could easily exceed the gains we made in the stock market for one whole year! Believe it or not, many people have this painful experience when the stock markets around the world took the nosedive in May this year.

Your hard-earned money which you hope to “strike it big in the stock markets’ to finance a comfortable retirement, the best college/university for yourself or your children, your dream penthouse and fast cars, etc – all wiped out within hours! You burnt your fingers again…..

This is the reason why many people shun the stock markets when the bear rears its ugly head. “ Times are bad. It’s best I stay clear of any form of investment because I am bound to lose money.”

Get rid of this lousy mentality! There are opportunities to make profits and accumulate wealth for yourself and your family in any situation if you know WHERE to put your money into.

In my previous article “The Story of Silver and How It Can Preserve and Enhance Your Wealth.”, I provided some data to illustrate the huge potential of silver as a core investment that you should (in fact, MUST!) include in your portfolio to diversify and hence, to minimize volatility.

In the most recent Forbes magazine Investors’ Guide 2007 – the Best Performers for Commodities for 2006: Silver racked in a cool 55.6% in just one year while gold lags behind at 21.6%. Silver has once again proved to be a better alternative to other precious metals like platinum, palladium and gold, in terms of returns. Platinum and palladium did not even make it to the top 10 Best Performers.

What cause the price of silver to soar?

Weaker and weaker US dollar – due mainly to the fear of the ever-rising US trade deficit (put simply, US citizens spend more than they save. They buy a lot more imports than they sell exports to foreigners). US dollar – the international reserve currency losing its value and it is expected to continue to lose value against other currencies. No wonder investors are getting nervous!

Rising inflation

Rising interest rates – the US, Japan and EU have raised interest rates for the past year. Interest rates in the international markets tend to move in tandem (i.e. move together).

“Crude oil prices are here to stay at US$50 per barrel.”, “Cheap oil (at less than US$30)… No longer!”. Surging oil prices which in turn lead to higher prices of most goods that we consume. Needless to say, those of us car owners really feel the pinch of paying more for petrol in addition to higher electricity and utilities bills.

Uncertainty (nervousness) in the stock markets – the DOW hits the psychological level of 12000 points in the past few weeks and is climbing steadily. But how long can this bull run last especially when fears of rising inflation in the US, its depressing housing market and slower economic growth are increasing evident.

World tensions like terrorist threats and/or attacks, political and social unrest, etc.

A more balanced and sensible approach to portfolio management

Silver price and stock market performance are negatively correlated – historically, when stock markets aren’t doing well, silver prices tend to rise. This is only so because silver is universally recognized as a store of value during times of economic uncertainty and during volatile stock markets.

Silver and oil prices are positively correlated. Studies have shown that the correlation to be around 0.68. When oil prices shot up, silver prices tend to rise as well.

We can’t control stock market movements, neither could we dictate price of crude oil. However, we could use our knowledge to hedge our portfolio for a more superior overall return in our portfolio. After all, this is what all investors aim to achieve.

2006 is coming to an end. Take some time to review your portfolio. Aim for a balanced mix of asset allocation for the most optimal returns. 2007 may turn out to be a more prosperous year for you! All the best!