Best of the Week
Most Popular
1.Gold Price Target of USD 2,300 - GoldCore
2.Greece Banking System Collapse Monday as ECB Pulls the Plug, Capital Controls Ahead of GrExit - Nadeem_Walayat
3.Why British Muslims Are Leaving Elysium Paradise for Syrian Hell - Nadeem_Walayat
4.Greece BANKRUPT! Financial and Economic Collapse to Follow IMF Debt Default - Nadeem_Walayat
5.Extreme Gold/Silver Shorting - Zeal_LLC
6.European Empire Strikes Back Against Greek Debt Fantasy, Counting Down to GREXIT - Nadeem_Walayat
7.Gold And Silver – Three Choices: Sell, Hold, Hold and Add. A Trading Treatise - Michael_Noonan
8.Gold and Silver Price Headed for Breakdown - Jordan_Roy_Byrne
9.Greece Crisis OXI - Raul_I_Meijer
10.Flatline Investing and Dead End Debt Schemes - Doug_Wakefield
Last 5 days
Greece Crisis Shows Importance of Gold as Europeans Buy Coins and Bars - 30th June 15
Stock Investors Express Route to Profits in the Healthcare Sector - 30th June 15
Beyond the Greek Impasse - 30th June 15
Gold GDXJ : Impulse Move Pending - 30th June 15
Fed Interest Rate Increase Could Be Best Thing to Happen to Gold - 30th June 15
Marc Faber - Greece is Basically Bankrupt - 30th June 15
Greece - Shoot the Dog and Sell the Farm - 29th June 15
Grexit?, BIS Warning, Chinese Market Crash & Systemic Risk Shake the Global Economy - 29th June 15
The New "Sharing Economy" May Not Be the Profit Bonanza Everyone's Expecting - 29th June 15
Gold and Silver Greece and Short Positions - 29th June 15
Volatility and Sleep-Walking Markets - 29th June 15
Greece BANKRUPT! Financial and Economic Collapse to Follow IMF Debt Default - 29th June 15
Stock Market More Decline Ahead? - 29th June 15
China Stock Market Crackup - The Final Trap Looms... - 29th June 15
Greece Banking System Collapse Monday as ECB Pulls the Plug, Capital Controls Ahead of GrExit - 28th June 15
Investor Stock Play for Two Growing Missile Threats - 28th June 15
Stock Market Uptrend/downtrend Inflection Point - 27th June 15
Greece Crisis OXI - 27th June 15
Gold And Silver – Three Choices: Sell, Hold, Hold and Add. A Trading Treatise - 27th June 15
It’s Time to Change the Way You Look at Disney Forever - 27th June 15
Flatline Investing and Dead End Debt Schemes - 27th June 15
Stock Market Investors Avoid the "Herd" Like the Plague - 26th June 15
Extreme Gold/Silver Shorting - 26th June 15
USD Daily, Weekly, Monthly & Conclusions - 26th June 15
Gold Price Target of USD 2,300 - 26th June 15
Gold and Silver - Another Successful Option Expiration For the Insiders - 26th June 15
Why Buffett Bet A Billion On Solar Energy - 26th June 15
Fed Taper Talk, And The $10 Bill - 25th June 15
When a Bond Is Not a Bond - 25th June 15
Nature Rebounds - Trends in America Portend a Global Restoration of Nature - 25th June 15
Stocks That Profit... Even When You're Dead Wrong - 25th June 15
When Will US Debt Hit the Wall? - 25th June 15
Ron Paul Warns “They Can’t Print Money Forever” - 25th June 15
In Gold We Trust 2015: Gold Remains In A Secular Bull Market - 25th June 15
European Empire Strikes Back Against Greek Debt Fantasy, Counting Down to GREXIT - 25th June 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

China Stocks - Where are they going?

Leveraging Silver Investments with Silver Stocks

Commodities / Analysis & Strategy Jan 20, 2007 - 09:41 PM GMT

By: Robert_Watson

Commodities I talked a couple of weeks back about how silver could be used to leverage the price of gold but what about silver mining stocks leveraging the price of silver? In that previous article a four-year rolling leverage of silver over gold was calculated to show how silver either out-performed or under-performed gold as bull markets waxed and waned. Applying the same principles, we have the following 4-year leverages for the mining companies that make up The Silver Analyst Stock Composite Index. The stocks are listed according to performance. The record maximum leverage is given to the right as well as the date on which it occurred.


The average of all the leverages is given at the bottom to show how this group as a whole is leveraging the price of silver. The average value of 1.76 tells us that over the last four years this basket of stocks returned 76% over and above any gains made by silver, it does not appear to be too dissimilar to how the HUI has leveraged the price of gold over the same period.

STOCK CURRENT MAXIMUM
EDR 5.05 72.58 (31 Dec 05)
EXN 2.80 5.28 (03 Sep 02)
SSRI 2.36 8.65 (18 Feb 04)
GPR 2.27 2.94 (23 Nov 06)
PAAS 1.41 4.29 (13 Dec 04)
CDE 1.19 3.50 (28 Nov 05)
OK 1.07 1.39 (07 Sep 05)
HL 0.71 8.05 (11 Nov 04)
SIL 0.41 2.29 (03 Sep 02)
SQI 0.28 3.67 (20 Jan 04)
AVERAGE 1.76

Clearly there is a wide range in performance amongst our representative shares. Anything around the 1 level is not worth owning as silver itself is as good as or outperforming that stock. That includes Orko, Hecla, Apex and Silver Quest here. Now these stocks may go onto greater things but until they make a decent breach above the "no leverage" level of one, caution is required in any investment decision.

However, looking at the leverage chart for Orko Silver below, we see some promise. After dropping to a miserable negative leverage of 0.6 last August, Orko has pushed onto 1.07 and is now slightly outperforming silver by 7% over a four-year measure. It also stands above its 200 day moving average value of 0.84 that needs to be maintained for a few weeks before one can consider this stock as solidly leveraging silver once more.

Leveraging Silver Investments with Silver Stocks

Meanwhile, Endeavour Silver sits at the top with an end of year leverage of 505% over silver. This is great but an apparent problem lies in the "Maximum" column, which states that this company returned a gargantuan leverage of 7258% over silver by the 31st December 2005. Since then it has dropped like a rock. Is this something to worry about? Not at all!

Leveraging Silver Investments with Silver Stocks

When one sees such huge gearings on the price of silver they are inevitably down to one thing. The company in question has seen significant reserve growth via discovery or acquisition. They have finally hit pay dirt with a big find or their current deposits have been substantially upgraded. Not surprisingly, in that 72.58 leverage timeframe, this company went from 2 cents a share to 2 dollars a share.

This is because a company leverages two quantities. It leverages the price of silver but it also leverages the amount of silver it has under its control. Once investors have assimilated this new reserves information and adjusted the share price accordingly, the leverage goes back to purely leveraging the market price of silver.

So we do not expect to see such leverage numbers again from Endeavour. Now the leverage is well below a historically skewed 200-day moving average of 15. But once the moving average works off those one off leverages, we expect the leverage to meet it and stay above it.

Quite simply, a leverage of 505% is enough to stay on board but if this number continues to drop in the face of a rising silver price, a re-evaluation will be required. For now the silver price is volatile and not in a well-established rising pattern, so this stock is a hold by default.

Finally, I may note that this four year rolling leverage chart is not the same as a chart produced by dividing the price of the equity by the price of silver. One must know that a stock's performance is calculated by comparing two prices over a certain time period. Dividing two distinct asset prices from the same day does not measure leverage although it can show in a qualitative manner that a stock is out-performing or under-performing silver in this case.

By using a leverage chart such as those examined in The Silver Analyst, the performance question can be quantified by the simple fact that if the leverage drops below 1 it is under-performing silver and if it goes above 1 it is out-performing silver. A simple stock to silver price ratio cannot convey this information.

By Robert Watson

This article is adapted from issue one of The Silver Analyst newsletter.Further analysis and comment on the silver market can be read in the subscriber-only Silver Analyst newsletter described at http://silveranalyst.blogspot.com where readers can obtain the first issue free. Comments and questions are also invited via email to silveranalysis@yahoo.co.uk .


© 2005-2015 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

Biggest Debt Bomb in History