The Devil's Metal... Calls for $50.00 Silver Get More Vocal (SLV, SIVR, AGQ, GLD, SLW, PAAS)

The move of a generation in silver continues to rise in The Devil’s Metal.  The same logic two years ago for why silver was the better metal than gold for inflation hedging has come on in full force.  Now that the $40.00 per ounce level has been breached, we have more calls for “No guts, no glory” in silver and more evidence is there that silver really is “The Devil’s Metal.”… Some of the same guys that sounded nuts calling for $40.00 per ounce are now calling for $50.00 per ounce in silver.

At $50.00, it really is the Devil’s Metal.  For starters, $50.00 per ounce is going to be bad for you and bad for me.  This means that “real” inflation is in full swing rather than the fear of inflation.  The iShares Silver Trust (NYSE: SLV) hit a new high of $41.73 today and the ETFS Physical Silver Shares (NYSE: SIVR) hit a new high of $42.53 today.  For those using leverage, the ProShares Ultra Silver (NYSE: AGQ) also hit a new high of $287.25 versus a 2010 close-out price of $158.95.  It has been impossible to ignore that gold hit new recent highs as well and the SPDR Gold Shares (NYSE: GLD) peaked so far at $144.90, meaning that gold is flirting with $1500.00 per ounce.

Two more winners at $50.00 silver will be Silver Wheaton Corp. (NYSE: SLW) and Pan American Silver Corp. (NASDAQ: PAAS).  Silver Wheaton hit a high of $43.85 today and its 52-week trading range is $16.80 to $47.60. Pan American Silver hit a high so far today of $38.69 and its 52-week trading range is $22.21 to $43.06.

We are seeing $50.00 silver calls more and more now.  A basic news search will show $50 silver calls from The Market Oracle, GFMS, the WSJ, Resource Investor, Bloomberg and on and on.

A basic recap of why silver is better than gold is very simplified, but at least some food for thought from the mind of a simpleton. Admittedly, this is one-tenth of the driving force and is “stupefied” for simplicity… Gold is too small per unit and costs too much for poor people whether times are good or bad.  Silver is what can be used “at the street level” for buying food, water, and basic needs items.  If we have to use gold for those things, then it means there has been a global breakdown.  Silver also is easier to use for industries.

The big trick is here to interpret the Gold/Silver Ratio.  Trying to bet against this now may seem like throwing darts at a dart board when you know that someone is firing a machine gun in the general area.  Still, this gold/silver ratio is reaching what would be a generational extreme.  We track this at GoldPrice.org and what was extreme at 37 a week ago is now even lower at 35.3 per the charts.  This now broke the 1998 lows and we are now approaching extremes not seen since the early 1980s and this data goes back even further here.

Playing the gold/silver ratio is easy for retail investors who don’t want to make a directional bet on metals.  If you believe that silver will fall more than gold or that gold is now “undervalued” then (with equal dollar amounts in each) you can buy SPDR Gold Shares (NYSE: GLD) and short the iShares Silver Trust (NYSE: SLV).  That trade would have been an absolute widow-maker so far.

Lastly, getting exposure to the silver and gold market in a basic brokerage account can easily be done via stock options for the SLV and GLD trusts.  The cost to bet on $50.00 silver by January 2012 is currently about $2.60 per options contract.  That same $50.00 call bet for July 2011 expiration costs ‘only’ $0.80 per contract.  The bet going the other direction by the same amount is cheap in puts now as the trade has been so one-sided: the $34.00 PUTS for July 2011 are selling for about $0.65 today.

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JON C. OGG