Investing In Silver – Silver Wheaton Is An Interesting Play

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Why the huge difference in return?

It’s simple… while gold and silver have many of the same drivers, there are some very important differences.  Let’s look at their similarities first…

Right now the overriding driver of gold and silver prices is fear.  Fear of inflation, fear of the dollar being devalued, and fear of a double dip recession.

Fear, my friends, is a powerful motivator.

And that’s why these precious metals are skyrocketing in value.  Anyone with two brain cells to rub together can see the US Federal Reserve is flooding the market with cheap and easy money.  They call it quantitative easing… I call it destructive.

What’s happening is the cheap and easy money is sloshing around the global economies.  Once everyone wanted US Dollars… now most smart people don’t!  Why?  Because US Dollars are just like a commodity… too much supply and not enough demand cause the value to fall.

It’s simple right!?!

So why hold onto US Dollars if their value is falling?  You don’t.  And that’s why the US Dollar is going to continue to fall.

There’s a silver lining to this story however.  Gold and silver love the falling dollar… it only serves to drive their value higher.

Another driver is inflation.

Inflation is closely tied to the US Dollar, the Federal Reserve decisions, the economic recovery, and even employment rates.  Now I’m not going to get into all those details here.  Let’s just say inflation is a big reason many investors are buying gold and silver.

So we have the falling dollar and inflation driving gold prices higher… but there are other forces at work pushing silver even higher.

While gold and silver are great to use in jewelry and coins, silver is also used as an industrial metal.  This precious metal does double duty. Silver is often used in electrical contacts, in medical devices, as an antimicrobial agent, and as a catalyst.

The list of uses goes on and on… but the key is commercial demand for the metal is strong.  And as the economy continues to heat up, demand for silver has only one direction to go… UP!

Now if you believe, like I do, silver demand is heading higher - and silver prices are poised to move higher as well - there are a number of ways to profit.

You can buy coins or bullion… but then you need to store it and worry about people stealing it.  You can buy an ETF holding tons of the metal… and that’s not a bad option.  But I stumbled upon a different way to profit from the rising value of silver.

And I’m going to share it with you today!

I want you to take a close look at a company called Silver Wheaton (SLW).

The company has been skyrocketing in value, right along with the price of silver.  Their business model is simple and quite amazing.  In 2004, the company started acquiring the right to buy silver directly from the mines.

They give the miners an upfront payment and Silver Wheaton can then buy all or part of their production at a fixed price!

The miner gets money to operate the mine, and Silver Wheaton locks in production at low rates.  Even better… as mine production increases, so does the amount of silver they can buy!  Silver Wheaton now owns the rights to more silver reserves than any company in the world!

What’s amazing is they cut many of these deals back when silver prices were low.  So they are paying a cash cost of around $4.00 an ounce for silver!  Remember, right now silver is trading for almost $36 an ounce.  The difference is almost all pure profit.

What’s more, Silver Wheaton has the potential to cut new deals, acquire production from other mines, and even has a first right of refusal on others.  Their flow of silver doesn’t seem to slow down… and that’s great for the company’s finances.

Just a few days ago the company announced their 2010 results, and let me tell you, they were off the charts!

I’m not going to go line by line through their announcement… but this one data point will give you an idea of just how well it’s going… Silver Wheaton’s Net Earnings in 2010 more than doubled to $123 million.

If you’re looking for a new way to play the booming silver market, take a closer look at Silver Wheaton… you won’t be disappointed.

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