Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Online Elliott Wave Markets Trading Course Worth $129 for FREE! - 22nd Sep 20
Gold Price Overboughtness Risk - 22nd Sep 20
Central Banking Cartel Promises ZIRP Until at Least 2023 - 22nd Sep 20
Stock Market Correction Approaching Initial Objective - 22nd Sep 20
Silver Bulls Will Be Handsomely Rewarded - 21st Sep 20
Fed Will Not Hike Rates For Years. Gold Should Like It - 21st Sep 20
US Financial Market Forecasts and Elliott Wave Analysis Resources - 21st Sep 20
How to Avoid Currency Exchange Risk during COVID - 21st Sep 20
Crude Oil – A Slight Move Higher Has Not Reversed The Bearish Trend - 20th Sep 20
Do This Instead Of Trying To Find The “Next Amazon” - 20th Sep 20
5 Significant Benefits of the MT4 Trading Platform for Forex Traders - 20th Sep 20
A Warning of Economic Collapse - 20th Sep 20
The Connection Between Stocks and the Economy is not What Most Investors Think - 19th Sep 20
A Virus So Deadly, The Government Has to Test You to See If You Have It - 19th Sep 20
Will Lagarde and Mnuchin Push Gold Higher? - 19th Sep 20
RTX 3080 Mania, Ebay Scalpers Crazy Prices £62,000 Trollers Insane Bids for a £649 GPU! - 19th Sep 20
A Greater Economic Depression For The 21st Century - 19th Sep 20
The United Floor in Stocks - 19th Sep 20
Mobile Gaming Market Trends And The Expected Future Developments - 19th Sep 20
The S&P 500 appears ready to correct, and that is a good thing - 18th Sep 20
It’s Go Time for Gold Price! Next Stop $2,250 - 18th Sep 20
Forget AMD RDNA2 and Buy Nvidia RTX 3080 FE GPU's NOW Before Price - 18th Sep 20
Best Back to School / University Black Face Masks Quick and Easy from Amazon - 18th Sep 20
3 Types of Loans to Buy an Existing Business - 18th Sep 20
How to tell Budgie Gender, Male or Female Sex for Young and Mature Parakeets - 18th Sep 20
Fasten Your Seatbelts Stock Market Make Or Break – Big Trends Ahead - 17th Sep 20
Peak Financialism And Post-Capitalist Economics - 17th Sep 20
Challenges of Working from Home - 17th Sep 20
Sheffield Heading for Coronavirus Lockdown as Covid Deaths Pass 432 - 17th Sep 20
What Does this Valuable Gold Miners Indicator Say Now? - 16th Sep 20
President Trump and Crimes Against Humanity - 16th Sep 20
Slow Economic Recovery from CoronaVirus Unlikely to Impede Strong Demand for Metals - 16th Sep 20
Why the Knives Are Out for Trump’s Fed Critic Judy Shelton - 16th Sep 20
Operation Moonshot: Get Ready for Millions of New COVAIDS Positives in the UK! - 16th Sep 20
Stock Market Approaching Correction Objective - 15th Sep 20
Look at This Big Reminder of Dot.com Stock Market Mania - 15th Sep 20
Three Key Principles for Successful Disruption Investors - 15th Sep 20
Billionaire Hedge Fund Manager Warns of 10% Inflation - 15th Sep 20
Gold Price Reaches $2,000 Amid Dollar Depreciation - 15th Sep 20
GLD, IAU Big Gold ETF Buying MIA - 14th Sep 20
Why Bill Gates Is Betting Millions on Synthetic Biology - 14th Sep 20
Stock Market SPY Expectations For The Rest Of September - 14th Sep 20
Gold Price Gann Angle Update - 14th Sep 20
Stock Market Recovery from the Sharp Correction Goes On - 14th Sep 20
Is this the End of Capitalism? - 13th Sep 20
The Silver Big Prize - 13th Sep 20
U.S. Shares Plunged. Is Gold Next? - 13th Sep 20
Why Are 7,500 Oil Barrels Floating on this London Lake? - 13th Sep 20
Sheffield 432 Covid-19 Deaths, Last City Centre Shop Before Next Lockdown - 13th Sep 20
Biden or Trump Will Keep The Money Spigots Open - 13th Sep 20
Gold And Silver Up, Down, Sideways, Up - 13th Sep 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Invest in Silver or Silver Stocks?

Commodities / Gold & Silver Apr 29, 2008 - 12:36 PM GMT

By: Bob_Kirtley

Commodities

Best Financial Markets Analysis ArticleIn May 2006 silver spiked at fifteen dollars and the HUI Index also spiked at 400, today we have silver trading at seventeen dollars, having been as high as twenty dollars, and the HUI Index stands at 406!

This raises the question of whether it is better to invest in the metal itself or to invest in silver stocks?


To answer this question we need to determine why we are no longer seeing any leverage in the stocks to the metal. One of the reasons for taking the risk of investing in a mining exploration and producing enterprise is because we hope to realise a better return then the underlying metal can provide. Ratios of 3:1 or even 4:1 are usually expected to prevail. In an attempt to encapsulate what is happening we will use a few snap shots of silver versus the HUI Index. The HUI Index consists of gold and silver mines, not just silver mines, however, we will use it for this exercise.

If we take a look at this chart covering the last seven years we can see that the mining stocks as represented by the HUI Index of basically un-hedged mining companies outperformed silver by a considerable margin. So over that time period the place to be was in the stocks and not so much the metal.

Silver vs HUI Chart 7 years 29 April 2008

However, if we now consider this chart of the last 3 years then we can see that silver has outperformed the silver stocks so the place to be invested was silver and not so much the stocks.

silver vs stocks chart 29 April 2008

Now if we take a look at this year only we can see that the stocks have struggled to keep up with the silver prices. True it is only a snap shot of a four-month period but the leverage that we would like to see has completely dissipated recently and that the disparity is becoming wider.

Silver vs silver stocks 3 months 29 April 2008

We could write this off as a short-term aberration and wait for the stocks to play catch up or conclude that this is a new trend forming and therefore re-position ourselves in this market accordingly.

To what can we attribute this disparity and is it here to stay or will it too pass on by with a little more time. The first thing that springs to mind is the creation of the silver Exchange Traded Funds (ETF) a relatively new investment vehicle offering exposure to silver via a fund. Knowing just how much silver these funds possess gives us a clue to just how money has been invested in them and therefore is not available for investment into silver producers. For this answer we turn to silveraxis who carry the following data:

Ounces Held by Silver ETF SLV 185m, ETF ZKB – SWISS 15m, ETF PHAG – LSE 11m, COMEX Warehouses 135m, Central Fund of Canada 41m, Millenneum Bullion Fund 3m. We could debate the data but that would detract from the point of this discussion.

This is roughly a total of 400 million ounces at say $17/oz, which equates to $6,800 million tied up in this form of investment, or in round numbers $7 billion. This amount of cash would buy hundreds of silver exploration companies or four or five of the bigger producers on a market capitalisation basis. So we can see that the capital flow to these funds is huge and is most certainly a drain on the investment capital available for investment in silver stocks.

For investors this form of investment offers excellent liquidity enabling even the biggest players to enter and exit the silver market at the push of a button. So if this trend continues then it could be some time before we see a return to what was conventional wisdom in terms of stock leverage to silver prices.

We are not advocating the purchase of EFTs just recognising that we now have silver the metal, silver stocks and a paper representation of the metal to choose from.

If you have an opinion on this subject then please feel free to add your comments whether you agree with us or not as they will add some balance to the debate.

If you would like to follow our adventures in the silver sector and receive our frequently published and soon to be legendary free newsletter then please click this link

 

By Bob Kirtley

For ideas on which gold stocks to invest in, subscribe to the Gold Prices newsletter at Gold-Prices.biz completely free of charge.

DISCLAIMER : Gold Prices makes no guarantee or warranty on the accuracy or completeness of the data provided on this site. Nothing contained herein is intended or shall be deemed to be investment advice, implied or otherwise. This website represents our views and nothing more than that. Always consult your registered advisor to assist you with your investments. We accept no liability for any loss arising from the use of the data contained on this website. We may or may not hold a position in these securities at any given time and reserve the right to buy and sell as we think fit.

Bob Kirtley Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules