Silver Wheaton: More than Likely to Move Up

Investment U

by Matt Weinschenk

The Silver Lining to a Dismal Morning

On a day like today, it’s tough to get excited about stocks.

But someone sure was excited about Silver Wheaton Corp (NYSE: SLW) Tuesday morning. It gapped up 2% and kept rising from there. Silver Wheaton is one of a few well-known silver plays. And I’m behind silver for a lot of reasons…

Over the last 200 years, the mean gold/silver ratio has been 31.32. Tuesday it surged to 69. A simple reversion to the mean makes a great play here. For those of you without finance books handy, it means that silver is more likely to move up to maintain the average ratio.

But that’s not all…

Silver – A Consumption Commodity

Silver isn’t just a store of value, it’s a consumption commodity.

Globally, 63% of demand for silver comes from industry or photography. Only 27% ends up in coins, medals or jewelry. Silver goes into everything from batteries to ball bearings, electronics to electroplating, and medical devices to mirrors.

Only 11% of gold demand comes from industrial uses, and the gap is widening.

Researchers find new uses for silver constantly. For example, UK researchers found that coating medical equipment in silver ions prevents infections. Coating lumber with a fine silver mist makes it resistant to mold and mildew.

As industrial consumption increases, less of each year’s production will be available for holding as a precious metal.

However, this does make silver dependent on a consumption economy… which we seem to be lacking at the moment. Silver won’t really move until we get a turnaround in the global economy. But that doesn’t mean that Silver Wheaton Corp will have to wait that long.