Gene Arensberg, precious metals analyst and author of the popular Got Gold Report, reiterates in his recent report his bullishness for silver. Although Arensberg is bullish on gold over the longer term, he sees the potential for more immediate upside action in silver.

Arensberg notes that iShares Silver Trust (SLV), the largest silver ETF, lost no holdings in the last reporting week but gained 42.07 tons the prior week. Further, the trust continues to hold more silver than the original custodian agreement called for, now reporting 8,766.93 tons of the metal. SLV turned out to be much more successful than anticipated. Still, Arensberg recommends that SLV investors convert their shares to physical silver.

He notes that premiums on the common forms of physical silver are “. . . back to normal or near normal and availability seemingly adequate regionally, now might be an excellent time to convert shares of SLV into the real deal physical metal.” Later in the report, Arensberg says, “Call it intuition, or trader’s instinct, or whatever, we believe those planning to convert gold and silver ETFs into physical metal might want to do so with a sense of urgency now (emphasis his), as we doubt that premiums will remain near normal for an extended period. Regardless if gold and silver move substantially higher or lower we expect to see premiums moving higher toward the end of the year and maybe much sooner.

From my perspective, I see premiums on physical silver and gold products about as low as they are going to get.

Increasing Arensberg’s bullishness on silver is his analysis of the large commercials’ positions in the silver futures markets. The LCs have increased their short positions in gold, but have steadily refused to take bigger short positions in silver. See Arensberg’s Got Gold Report for his analysis.

Finally, Arensberg recommends that long-term precious metals holders consider switching from gold to silver because of not only market conditions but also because of the gold/silver ratio, which is hovering in the 70:1 area. This is a recommendation with which I agree.

Historically, silver has outperformed gold (on a percentage basis) in all precious metals bull markets. Now, the silver market is experiencing a genuine shortage that should cause silver to continue its trend of outperforming gold.

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In an article posted on resourceinvestor.com, Scott Wright, an analyst for Zeal LLC, makes a case for speculating in small silver mining companies, commonly called “juniors.” In doing so, Wright uncovers one of the compelling reasons why silver production will suffer in the future.

Most small silver mining companies have little cash flow from which to fund exploration programs, or even to evaluate and develop deposits already discovered. Therefore, “junior” silver mining companies regularly sell shares to raise capital.

However, the recent global stock panic saw across-the-board selling of all assets and hit commodities stocks particularly hard. Many silver stocks saw 70%+ declines, with the juniors suffering the worst of the damage by far. With their shares selling at such low prices, the mining companies are not selling shares because doing so would cause them to give up huge percentages of their companies. Until investors regain faith in the junior silver mining companies’ stocks, those companies will be husbanding their resources, seeking first to survive, then to look for new deposits.

Although most silver investors buy silver because of concerns about the dollar, this development makes investing in silver bullion even more attractive. Here’s a link to Wright’s article, which provides other good insights into the silver market.