Does This Buffett Axiom Favor Silver? – iShares Silver Trust (ETF) (SLV), Goldman Sachs Group, Inc. (GS), JPMorgan Chase & Co. (JPM)

Why silver is the best play
In addition to the higher volatility mentioned by Gundlach — which means it will increase faster if a rotation back to precious metals occurs — silver has the advantage of increasing industrial demand. As I have recently discussed, HSBC raised its 2013 and 2014 price target, largely as a result of increased estimates for industrial demand. Silver is used in health care and technology applications that are themselves experiencing significant growth.

Additionally, while silver miners like Pan American Silver Corp. (USA) (NASDAQ:PAAS) and First Majestic Silver Corp (NYSE:AG) have continued to face increased production costs, other options exist. First Majestic reported record productions and led the industry on cost, but still saw major declines. Pan American achieved similar results, but had an even less favorable cost structure.  On the other hand, plays like Silver Wheaton Corp. (USA) (NYSE:SLW) offer investors leveraged exposure to silver — and the company’s 800 million ounces of reserves — without the same cost pressure. As a streaming company, Silver Wheaton buys the production of other miners at a predetermined, fixed price, leaving it less exposed to production costs.

While the SLV still gives investors the most commodity-like return option, the overall message is that silver is well positioned at current levels. As the masses are greedily pouring into stocks, I agree with Buffett and others, and am fearful of the rally. Silver should act as a solid hedge and a longer-term performer.

The article Does This Buffett Axiom Favor Silver? originally appeared on Fool.com and is written by Doug Ehrman.

Fool contributor Doug Ehrman has no position in any stocks mentioned. The Motley Fool recommends Goldman Sachs. The Motley Fool owns shares of JPMorgan Chase & Co.

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