Caller: This caller is interested in investing in silver. Bob said he views silver as a speculation. It’s price will depend on how popular or unpopular silver is in the market place. Last year, silver was trading around $27 in the exchange traded fund that Bob recommends under ticker symbol, SLV. Now it is trading in the low-$30s so it has done pretty well. Bob said if you are going to speculate in precious metals, his first choice would be the GLD shares which are backed by gold if you are inclined to implement a hedge in gold. Bob said to beware of people trying to sell you collectable coins where the mark-ups on gold or silver coins are ridiculously high.
EC: Bob was referring to the iShares Silver Trust (SLV) which closed Friday at $34.37. Read the article out this weekend entitled, “Follow The Money: Silver ETF Fund Flows Up Sharply” at this url: http://tinyurl.com/7pgn9b7
OIL AND ENERGY SECTOR
Caller: With all of the talk about oil prices going up, isn’t that a good thing for energy companies and their stock? If you are talking about a company that has oil in the ground in one form or another and that represents an asset, that asset appreciates when the price of oil goes up. That means the net asset value of the company will go up when the price of oil goes up. That said, if oil prices double overnight, while it might produce a spike in the value of oil companies it could reach a tipping point where consumers couldn’t afford it and usage would decline dramatically.
Brinker Comment: Oil has moved up modestly with West Texas Intermediate Crude at around $109. Brent Crude is around $125. What is happening is Iran. As long as this issue of wondering what is going to happen in Iran, there will be people coming into the oil market to get supply.
Brinker Comment: We have these threats from Iran with reference to the Strait of Hormuz where roughly 20% of oil goes through each day. And many people view the latest election in Iran as rigged. As long as they are wondering about Iran, they are going to be worried about Iran’s oil exports which measure in the millions of barrels per day. When you look at the relatively tight supply/demand ratio of oil around the world, then you are talking about a big impact Iran could have and that’s why you are seeing the volatility in oil right now.
EC: The Strait of Hormuz is the only sea passage to the open ocean for large areas of the Persian Gulf. According to the U.S. Energy Information Administration an average of about 15 tankers carrying about 17 million barrels of crude oil pass through every day. This represents 40% of the world’s seaborne oil shipments and 20% of all world oil shipments. It is important!
Kirk Here: These are some related charts and quotes:
Commodities: Crude Oil - Crude Oil ETFs - Gold - Natural GasCharts for Inflation Protection: CRBQ - GLD - TIP - VIPSXThis above is a subset of the February 12, 2012 issue of "David Korn's Stock Market Commentary, Interpretation of Moneytalk (Bob Brinker Host), Financial Education, Helpful Links, Guest Editorials, and Special Alert E-Mail Service." Together David Korn and I write "The Retirement Advisor" newsletter.