Financial Sense: "The Next It Project" by John Rubino 06/07/2006

While precious metals were getting whacked again today and arguments were raging about whether this is a healthy correction or the end of the run (see the mainstream’s take in Financial Times), the Wall Street Journal gave silver investors a reason to stop worrying and start buying. In an article titled “This War Against Germs Has a Silver Lining”, the Journal notes that the consumer products industry has suddenly discovered that silver 1) kills germs without hurting people, and 2) can be added to practically anything:

“Now, silver is showing up as a bacteria-and odor-fighting material in a range of contemporary consumer products, from sports socks to washing machines. Specialty retailer Sharper Image recently introduced a line of plastic food containers infused with silver nanoparticles that are intended to keep food fresher. The boxes, priced at $69.95 for a set of 12, have drawn positive reviews at Amazon.com, which sells Sharper Image products -- including one owner enthusing about strawberries staying fresh for 14 days.

In March, South Korea 's Samsung Electronics launched a new washer in the U.S. that uses silver ions to sanitize laundry. Plank, a small Boston company that sells Yoga accessories, recently introduced Cor, a soap with silver as the main active ingredient. The company says its supplier is also developing silver-imbued shampoo and toothpaste.

About three years ago, consumer products incorporating silver as an antimicrobial ingredient -- some made using nanotechnology to bond materials at a molecular level -- took off in Asia . Now some observers believe they are poised to become big in the U.S.

'Silver nanoparticles may very well become the next 'it' product, much like antibacterial soaps that took the consumer sector by storm a decade ago,' says Marlene Bourne, president of Scottsdale, Ariz.-based Bourne Research, which specializes in emerging technologies."

What this means is that silver, already in short supply because of rising industrial demand and the voracious appetite of the new iShares Silver Trust ETF, is about to attract a new category of buyers. Another positive: Where the silver used in many industrial applications can be recycled, and the bullion now being bought and stored by the ETF can be dumped back on the market with a keystroke, silver used in consumer products is pretty much gone for good. No one will bother taking socks and shirts with silver threads to a recycling center (at anything close to today’s silver prices, at least). Instead they’ll just throw them away or donate them to the local Salvation Army. The silver built into the new generation of washing machines is gradually leached off and sent down the drain. Ditto for the silver particles in soap, shampoo and toothpaste.

These new uses for silver, in other words, take it off the market permanently. The more popular they are, the less silver there is in the world’s warehouses to satisfy investment demand. As InvestmentRarities’ Ted Butler is fond of pointing out, there’s already a looming shortage of silver sufficient to send the price into triple digits. And now the depletion rate of the world’s remaining silver is headed into overdrive. I think this answers the question of whether today's sell-off is a buying opportunity.

John Rubino is the author of The Coming Collapse of the Dollar (co-written with James Turk), How to Profit From the Coming Real Estate Bust (Rodale, 2003), and Main Street, Not Wall Street (William Morrow, 1998). A former Wall Street financial analyst and columnist with theStreet.com, he currently writes for Fidelity Magazine, CFA Magazine, Kiplinger's Personal Finance, and Merrill Lynch Advisor. He lives in Moscow, Idaho. Contact by Email.