Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
Social Mood and Leaders Impact on General Election Forecast 2019 - 9th Dec 19
Long-term Potential for Gold Remains Strong! - 9th Dec 19
Stock and Financial Markets Review - 9th Dec 19
Labour / Tory Manifesto's Impact on UK General Election Seats Forecast 2019 - 9th Dec 19
Tory Seats Forecast 2019 General Election Based on UK House Prices Momentum Analysis - 9th Dec 19
Top Tory Marginal Seats at Risk of Loss to Labour and Lib Dems - Election 2019 - 9th Dec 19
UK House Prices Momentum Tory Seats Forecast General Election 2019 - 8th Dec 19
Why Labour is Set to Lose Sheffield Seats at General Election 2019 - 8th Dec 19
Gold and Silver Opportunity Here Is As Good As It Gets - 8th Dec 19
High Yield Bond and Transports Signal Gold Buy Signal - 8th Dec 19
Gold & Silver Stocks Belie CoT Caution - 8th Dec 19
Will Labour Government Spending Bankrupt Britain? UK Debt and Deficits - 7th Dec 19
Lib Dem Fake Tory Election Leaflets - Sheffield Hallam General Election 2019 - 7th Dec 19
You Should Be Buying Gold Stocks Now - 6th Dec 19
The End of Apple Has Begun - 6th Dec 19
How Much Crude Oil Do You Unknowingly Eat? - 6th Dec 19
Labour vs Tory Manifesto Voter Bribes Impact on UK General Election Forecast - 6th Dec 19
Gold Price Forecast – Has the Recovery Finished? - 6th Dec 19
Precious Metals Ratio Charts - 6th Dec 19
Climate Emergency vs Labour Tree Felling Councils Reality - Sheffield General Election 2019 - 6th Dec 19
What Fake UK Unemployment Statistics Predict for General Election Result 2019 - 6th Dec 19
What UK CPI, RPI and REAL INFLATION Predict for General Election Result 2019 - 5th Dec 19
Supply Crunch Coming as Silver Miners Scale Back - 5th Dec 19
Gold Will Not Surpass Its 1980 Peak - 5th Dec 19
UK House Prices Most Accurate Predictor of UK General Elections - 2019 - 5th Dec 19
7 Year Cycles Can Be Powerful And Gold Just Started One - 5th Dec 19
Lib Dems Winning Election Leaflets War Against Labour - Sheffield Hallam 2019 - 5th Dec 19
Do you like to venture out? Test yourself and see what we propose for you - 5th Dec 19
Great Ways To Make Money Over Time - 5th Dec 19
Calculating Your Personal Cost If Stock, Bond and House Prices Return To Average - 4th Dec 19
Will Labour Government Plant More Tree's than Council's Like Sheffield Fell? - 4th Dec 19
What the UK Economy GDP Growth Rate Predicts for General Election 2019 - 4th Dec 19
Gold, Silver and Stock Market Big Picture: Seat Belts Tightened - 4th Dec 19
Online Presence: What You Need to Know About What Others Know About You - 4th Dec 19
New Company Tip: How To Turn Prospects into Customers with CRM Tech - 4th Dec 19
About To Relive The 2007 US Housing Market Real Estate Crash Again? - 3rd Dec 19
How Far Will Gold Reach Before the Upcoming Reversal? - 3rd Dec 19
Is The Current Stock Market Rally A True Valuation Rally or Euphoria? - 3rd Dec 19
Why Shale Oil Not Viable at $45WTI Anymore, OPEC Can Dictate Price Again - 3rd Dec 19
Lib Dem Election Dodgy Leaflets - Sheffield Hallam Battle General Election 2019 - 3rd Dec 19
Land Rover Discovery Sport Brake Pads Uneven Wear Dash Warning Message at 2mm Mark - 3rd Dec 19
The Rise and Evolution of Bitcoin - 3rd Dec 19
Virtual games and sport, which has one related to the other - 3rd Dec 19
The Narrative About Gold is Changing Again - 2nd Dec 19
Stock Market Liquidity & Volume Diminish – What Next? - 2nd Dec 19
A Complete Guide To Finding The Best CFD Broker - 2nd Dec 19
See You On The Dark Side Of The Moon - 2nd Dec 19
Will Lib Dems Win Sheffield Hallam From Labour? General Election 2019 - 2nd Dec 19
Stock Market Where Are We?  - 1st Dec 19
Will Labour's Insane Manifesto Spending Plans Bankrupt Britain? - 1st Dec 19
Labour vs Tory Manifesto Debt Fuelled Voter Bribes Impact on UK General Election - 30th Nov 19
Growing Inequality Unrest Threatens Mining Industry - 30th Nov 19
Conspiracy Theories Are Killing This Nation - 30th Nov 19
How to Clip a Budgies / Parakeets Wings, Cut / Trim Bird's Flight Feathers - 30th Nov 19
Hidden Failure of SIFI Banks - 29th Nov 19
Use the “Ferrari Pattern” to Predictably Make 431% with IPOs - 29th Nov 19
Tax-Loss Selling Drives Down Gold and Silver Junior Stock Prices - 29th Nov 19
We Are on the Brink of the Second Great Depression - 29th Nov 19
How to Spot REAL Amazon Black Friday Bargains and Avoid FAKE Sales - 29th Nov 19

Market Oracle FREE Newsletter

UK House prices predicting general election result

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