Gold and silver are under pressure once again today. They have pulled back significantly from their recent highs hit on October 4th this year after spiking following global central bank actions in August and September. The precious metals, especially silver and gold, are taking a beating today and I view the sell-off as a buying opportunity as prices are back to levels not seen since late summer. The metals are under pressure ahead of a potential capital gains tax hike as a result of the fiscal cliff negotiations stalling in Washington.
At the time of this writing the SPDR Gold Trust (GLD) and the iShares Silver Trust (SLV) are are down 1.7% and 4.5% respectively. The ETFs that track the miners of these metals are down even further today. The Market Vectors Gold Miners ETF (GDX) and the Market Vectors Junior Gold Miners ETF (GDXJ) are down currently off 2.3% and 2.5%, respectively. In contrast the Global X Silver Miners ETF (SIL) is down slightly less than silver itself losing 2.1% thus far.
Today's losses in these equities add to the decline since mid-October, and each have corrected well over 10% since the highs. With last week's Federal Reserve announcement to accelerate its debt-buying program commonly referred to as quantitative easing, I believe that the time to do some buying of the silver miners for the long-term investor is now. These actions further the central bank easing tailwinds for precious metal prices that I have previously discussed. For those who can get to their local dealers, it is a great time to pick up some bullion and coins while prices are temporarily depressed. Further, while the aforementioned ETFs should perform well in 2013, individual stocks can offer substantially better returns relative to the ETFs and physical assets if selected carefully. With today's sell-off some of the best of breed silver companies are becoming oversold and are now opportunity buys for the long-term investor looking to initiate or add to a silver position.
Central Fund of Canada Limited (CEF): CEF is a closed-ended commodity mutual fund launched and managed by Central Group Alberta, Ltd. It "invests in the precious metals commodity markets. The fund primarily invests in silver and gold. The company provides an alternative for investors in holding marketable silver related investments. It invests its assets in holdings of unencumbered, allocated and segregated silver bullion and holds its assets in international bar form. CEF's nominal holdings of bullion certificates are deposited with Canadian Imperial Bank of Commerce." I encourage investors to consider this company because of the fact that shares are backed by physical bullion. My close followers know that I always prefer investments to be backed by something, which is often the case why I recommend the Sprott Physical Silver Fund ETF (PSLV) over the most popular iShares Silver Trust . Shares of the company currently are trading down nearly 3% on normal volume, with a share price of $20.98. CEF has a 52 week range of $18.44 to $24.46 and is off 14% from its yearly high. This equity is a nice indirect way to gain physical silver exposure and performs well as the price of silver rises.
Silver Wheaton (SLW): SLW operates as a worldwide silver streaming company. Silver streaming is basically a process by which the company purchases a mining firm's silver production in order to distribute that silver in the market. SLW has contracts to purchase silver in bulk at prices well below market value and then proceeds to sell the silver at a higher price. The company has "14 long-term silver purchase agreements and two long-term precious metal purchase agreements whereby it acquires silver and gold production from companies located in Mexico, the United States, Greece, Sweden, Peru, Chile, Argentina, and Portugal." I am becoming fond of so-called streaming companies, as there is less direct risk than the miners, yet the company is subject to the performance of the miners it contracts with, and by extension, the stock is tied to the price of silver. SLW is being sold down on average volume today, with over 2.5 million shares exchanging hands a little over halfway through today's session. SLW currently trades at $34.20, down 3.1% today. The stock is down 18% from its highs of the year. SLW's 52 week trading range is $22.94-$41.30. On average, about 4.6 million shares exchange hands daily. The company trades at a 22 multiple but only a 0.92 five year PEG ratio, and currently yields 0.83%.
Pan American Silver Corp (PAAS): PAAS explores, develops, and "operates silver producing properties and assets. The company engages in silver mining and related activities, including exploration, mine development, extraction, processing, refining, and reclamation. It produces and sells silver, gold, copper, lead, and zinc. The company has seven mining operations in Mexico, Peru, Argentina, and Bolivia; the Navidad silver development project in Chubut, Argentina; and the La Preciosa joint-venture project in Durango, Mexico." I think PAAS is a strong mining company, but some of the assets, such as those in Argentina are subject to political risks as the nation has been toying with the idea of partially nationalizing metals and mining assets for some time. The stock is getting hit hard today, adding to its already "cheap" share prices. PAAS is down 3.1%, currently trading at $17.30 a share. With a 52 week trading range of $13.49 to $27.11 the stock is now down a whopping 36% off its yearly high. It trades at a large discount relative to its peers at only a 10.6 multiple with a 1.6 PEG ratio. PAAS further yields a nice 1.1% annually. This stock may be the best short-term (i.e. to hold for less than a year) bet on silver being down 36% off the highs for those looking for a reversion to the mean, but PAAS also is a solid silver company for the long-term. In my opinion it is an opportunity buy at current levels and I bought call option on this stock today.
Hecla Mining (HL): One of the oldest and low cost silver miners in the United States, HL operates out of Coeur d'Alene, Idaho. HL seeks to discover, acquire, develop and produce silver, gold, zinc and lead mines in the United States. HL currently has two mines operating in Alaska and Idaho, and is the largest silver producer in the U.S. In 2011, HL produced over 9.5 million ounces of silver at a cash cost of a paltry $1.15 per ounce. HL pays a unique dividend that is a minimum of $0.01 per common share. It also attempts to pay dividends that are tied to the payments it receives for the silver it produces. As this is highly correlated to the price of silver, it fluctuates throughout the year, but has ranged from $0.003 cents per share to $0.022 cents per share in 2012, resulting in an estimated 1.2% dividend yield this year. Production is set to ramp up in 2013 as the Lucky Friday mine is set to re-open next year. The company has $200 million in cash with little debt, and anticipates 15 million ounces of silver production by 2015. This miner is quickly becoming one of my top picks in the space and is presenting an attractive level to establish a position. HL has 52 week trading range of $3.70-$6.94 and on average, about 4.3 million shares exchange hands daily. HL currently trades at $5.51 a share, dropping nearly 1.7% thus far today. The stock is now down 21% from its high this year. With production ramping up, the long term tailwinds for silver thanks to additional monetary easing coupled with the sell-off from the highs, HL is increasingly attractive.
Conclusion: Today's losses in silver and silver equities add to the decline since mid-October, and each have corrected well over 15% since the highs, with the exception of CEF down 14%. With continued Federal Reserve action to accelerate its debt-buying program -- commonly known as quantitative easing -- deciding to spend another $40 billion to $45 billion a month next year to replace the conclusion of 'operation twist', I reiterate that the time to do some buying of physical silver, silver ETFs and the silver miners for the long-term investor is now. This is especially true for those without exposure to the sector, as increased silver prices in the coming years will rapidly increase the value of physical holdings, as well as pad revenues for the silver companies directly impacting their bottom line, and by extension, resulting in appreciation of share values from current levels.