Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Why Most Investors LOST Money by Investing in ARK FUNDS - 27th Jan 22
The “play-to-earn” trend taking the crypto world by storm - 27th Jan 22
Quantum AI Stocks Investing Priority - 26th Jan 22
Is Everyone Going To Be Right About This Stocks Bear Market?- 26th Jan 22
Stock Market Glass Half Empty or Half Full? - 26th Jan 22
Stock Market Quoted As Saying 'The Reports Of My Demise Are Greatly Exaggerated' - 26th Jan 22
The Synthetic Dividend Option To Generate Profits - 26th Jan 22
The Beginner's Guide to Credit Repair - 26th Jan 22
AI Tech Stocks State Going into the CRASH and Capitalising on the Metaverse - 25th Jan 22
Stock Market Relief Rally, Maybe? - 25th Jan 22
Why Gold’s Latest Rally Is Nothing to Get Excited About - 25th Jan 22
Gold Slides and Rebounds in 2022 - 25th Jan 22
Gold; a stellar picture - 25th Jan 22
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

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 .


© 2005-2019 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