Best of the Week
Most Popular
1.Is the Stocks Bull Market Over? Dow Trend Forecast into End January 2015 - Nadeem_Walayat
2.Gold and Silver Stocks Apocalypse Now, Bear Market Review - Rambus_Chartology
3.NHS Baldrick Plan to Spread Ebola Across UK - Sheffield, Newcastle, Liverpool, London Hospitals - Nadeem_Walayat
4.Ebola Terror Threat Suicide Bio-Weapons Threatens Multiple 9/11's, Global Plague - Nadeem_Walayat
5.Second-Richest Man Says Mortgages Now a "No Brainer" - Dr. Steve Sjuggerud
6.Gold And Silver Still No End In Sight - Michael_Noonan
7.NHS Baldrick Plan to Spread Ebola Across UK - Sheffield, Newcastle, Liverpool, London Hospitals - Nadeem_Walayat
8.The Gold Bug is Set to Bite Back - EWI
9.How Alibaba Could Capitalize on the EBay-PayPal Split - Frank_Holmes
10.The Consequences of the Economic Peace - John_Mauldin
Last 5 days
Bullish Silver Stealth Buying - 24th Oct 14
Blood in the Streets to Create the Gold Stocks Investor Opportunity of the Decade - 24th Oct 14
Swiss ‘Yes’ and ‘No’ Gold Initiative Campaigns Compete at Launches in Bern - 24th Oct 14
War And The Law Of Unintended Consequences - 24th Oct 14
Tesco Meltdown Debt Default Risk Could Trigger a Financial Crisis in Early 2015 - 24th Oct 14
Saudi Move to Cut Oil Prices Is Now Russia's Biggest Economic Threat - 24th Oct 14
US Stock Market Top Is Now In Sight - 24th Oct 14
New Profit Points in the Shifting Balance of Power, Welcome to Saudi America - 24th Oct 14
QE Failure & Folly Of Paper Mache, Treasury Bond Integrated Lifeline Patches - 24th Oct 14
U.S. Economy Faltering Momentum, Debt and Asset Bubbles - 23rd Oct 14
Annuities - Afraid Your Money Will Vanish before You Do? - 23rd Oct 14
What Debt Deleveraging? - 23rd Oct 14
How to Profit from Massive Spin-Offs with Just One Play - 23rd Oct 14
Evaluating Ebola as a Biological Weapon - 23rd Oct 14
Euro, USD, Gold and Stocks According to Chartology - 23rd Oct 14
Why You Should Always Be Invested in the Stock Market (Even Now) - 23rd Oct 14
Five U.S. Housing Market Warning Signs Point to Real Estate Market Downturn - 23rd Oct 14
The Better Short: Gold or Silver? - 23rd Oct 14
Focus on Graphite Companies with Green Energy and Technology Strategies - 22nd Oct 14
Crude Oil Price Hitting Bottom - 22nd Oct 14
Evidence of Another Even More Sweeping U.S. Housing Market Bust Already Starting to Appear - 22nd Oct 14
Gold Or Crushing Paper Debt Stocks Crash? - 22nd Oct 14
India Gold Demand Surges 450% and Bank of Russia Demand At 15 Year High - 22nd Oct 14
Bitcoin Stock Exchange Could Be "More Valuable than Alibaba" - 22nd Oct 14
Currency War - How to Profit from a Stronger U.S. Dollar - 22nd Oct 14
Banks Hold Treasuries and Make Loans- 22nd Oct 14
Gold and Silver Timing is Everything - 22nd Oct 14
Don't Get Ruined by These 10 Popular Investment Myths (Part VII) - 22nd Oct 14
Follow the Baby Boom to Biotech Stock Profits - 22nd Oct 14
Copper, Nickel and Zinc Won't Be Cheap for Long - 22nd Oct 14
How Will We Know That the Gold & Silver Price Bottom Is In? - 21st Oct 14
Is Gold as Dead as Florida Hurricanes? - 21st Oct 14
First Swiss Gold Poll Shows Pro-Gold Side In Lead At 45% - 21st Oct 14
The Similarities Between Germany and China - 21st Oct 14
The REAL Reason Why the Stock Market Turned Down - 21st Oct 14
Petrobras is a 'Scheme, Not a Stock' - 21st Oct 14
Stocks Bear Market Indicator Is Off the Mark - 20th Oct 14
Stock Market Ideal Turning Point is at Hand - 20th Oct 14
Investors Quit Complaining, The Environment is Perfect Right Now - 20th Oct 14
Ebola Armageddon Could Trigger a Rebirth in Gold and Silver Prices - 20th Oct 14
Gold vs Euro Risk Due To Possible Return of Italian Lira - Drachmas, Escudos, Pesetas and Punts? - 20th Oct 14
Stocks Rebounded Following Recent Sell-Off, But Will It Last? - 20th Oct 14
U.S. Responsible for West Africa Ebola Outbreak Says Liberian Scientist - 20th Oct 14
Stock Market Intermediate B Wave has Started - 20th Oct 14
Gold Stocks Analysis – FNV, CG, NCM, SBM - 19th Oct 14
Stock Market Primary IV Wave Counter Trend Rally - 19th Oct 14
Gold And Silver - Financial World: House Of Cards Built On Sand - 18th Oct 14
Anatomy of a Stock Market Sell-Off - 18th Oct 14
Why OPEC Has Declared an Oil War on Russia - 18th Oct 14
Gold and Silver Extreme Shorting Peaks - 18th Oct 14
Bitcoin Price Fall to $350? - 18th Oct 14
Tesco Supermarket Crisis Worse To Come as Customers Vanish! - 18th Oct 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Stocks Epic Bear Market

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 .


© 2005-2014 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

Free Report - Financial Markets 2014