American Investment Services, Inc.

Disciplined, Diversified, & Cost Effective

Jun. 2011 – The Question of Silver

AIER recently published research regarding silver as a potential component of an investment portfolio. Silver was found to have several desirable attributes, but the evidence does not support its inclusion among our recommended asset classes at this time. The emergence of exchange traded funds could have a profound impact on the silver market. We will continue to monitor silver as more data accumulates.

An asset class is a category of assets that provides positive expected returns and also demonstrates unique risk return characteristics. With the exception of gold, our nine recommended asset classes meet both criteria. Gold provides no means of generating income. However, its price variation is distinct, and it serves a unique role as a form of money that has maintained its purchasing power over hundreds of years.

Silver also has a long history as a medium of exchange, and empirical research reveals several desirable features. Its returns move independently from those of our recommended asset classes, and are also less than perfectly correlated with the returns of gold. Gold and silver respond differently to macroeconomic variables as well. All of these characteristics are of potential interest to investors because they suggest that silver could supplement gold as a unique monetary alternative to fiat currencies.

The demand for silver, however, comes mostly from industrial users rather than investors. The silver price is influenced by industrial demand, which fluctuates with the business cycle. Like other commodities, and unlike gold, silver supplies get “used up” in production.

Also In This Issue

Capital Gain Taxes: New IRS Reporting Requirements
Holding Physical Gold: AIS Interviews James Turk
The High-Yield Dow Investment Strategy
Recent Market Statistics
The Dow Jones Industrials Ranked By Yield
Recommended Investment Vehicles