Circumstances Add Shine to Silver

Short term, the U.S. dollar has done very well. This summer, one euro was worth $1.60; now it's only $1.27. Even though most of the world's financial problems started in the U.S. with the subprime crisis, money has flown back into the country as it is still perceived as a safe place to harbor money. However, this recent boom in the dollar is bound to cool down.

The supply of silver might not jump just because prices do. The costs of labor, oil to run trucks and metal to make machinery have all gone up in recent years. Apex Silver's (SIL - commentary - Cramer's Take) recent 10-Q noted that the costs of refining lead has doubled since 2007. Much silver is refined from lead and zinc.

The drop in the price of silver and rise in costs are forcing some miners to sell off assets or merge. Apex is in discussions with Sumitomo Corporation to sell one of its operations. Mining companies from Australia to Canada are laying off workers and closing sites. When silver prices jump, mines will lag as they scramble to increase production. This could cause a rise in the price of silver.

All of these circumstances could portend good things for the price of silver. Also, it is a physical asset -- your investment won't go to zero like stock in Lehman Brothers.

Know What You Own: Because the iShares Silver Trust tracks the price of silver, some related equities investors might be interested in include Silver Wheaton (SLW - commentary - Cramer's Take), Silver Standard Resources (SSRI - commentary - Cramer's Take) and Coeur d'Alene Mines (CDE - commentary - Cramer's Take).

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At the time of publication, Osborne had no positions in the stocks mentioned.

Holmes R. Osborne III is a private money manager, founder of investment newsletter StockRoyalty.com and frequent author of financial columns. He has a degree in finance from the Martin J. Whitman School of Management at Syracuse University and is a CFA charter holder. Osborne is a member of the Pacific Council on International Relations, Malibu Rotary, Business Forum International and was formerly on the board of the L.A. National Association of Business Economists. He spoke this year at the fifth annual Value Investor Conference.