Invest in Gold Miners, Silver Miners, or Both? 17 comments
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Yesterday I took a look at silver and the silver ETF (SLV). It's up 2.2% at around $12.13. Then I looked at Pan American Silver (PAAS) and at the same moment it's up over 6% at $16.18. Silver Standard (SSRI) is up 4.5%.
Some of my favorite gold miners are having a good day too. GLD is up six-tenths of one percent (.6%). Goldcorp (GG) is up 2% at the same moment. IAM Gold (IAG) is up almost 5% ahead of earnings. Agnico Eagle Mines (AEM) is up over 2% right now.
One conclusion is that the days where the gold and silver miners are a leveraged way to invest in silver and gold are back with us and have been with us since December 08. Which kind of miners will make us the most money in the long-term? My research suggests that the answer is the silver miners, although there aren't many of them.
When you realize that Silver Wheaton (SLW) is more like a royalty company (a "silver middle-man") and not a direct producer, and that Hecla Mining (HL) has some great properties but a difficult balance sheet, the choices we have are much fewer than with the gold producers.
Investopedia posted the following thoughts on its site back on April 6th that are quite relevant:
Not all investors are in it for the thrill - rollercoaster nausea is not for everyone. So, how can we avoid the unpleasant, sometimes violent moves in the price of gold stock shares? The answer may lie in gold's poorer cousin: silver shares.
Standing at $1,020 in March 2008, gold fell 29% to $725 by October 2008 before rebounding to its current price of $925. Silver, by contrast, fell almost 60% over that period, from $21 to nine dollars, before rebounding to its current $13.20 level. Measuring off of the lows, the score is now: silver up 32%, gold up 28%.
And yet, the shares of many silver miners have lagged their golden cousins recently. Which leads many to believe that silver mining companies will outperform going forward.
One of the biggest (and oldest) names in the silver mining world is Coeur D'Alene Mines (CDE). Though it trades at a mere 92 cents, Coeur D'Alene is a giant, with assets in some of the most profitable (and secure) properties in North and South America. Shares bottomed at 36 cents before rising to recent highs.
Hecla is a another oldtime operation with properties scattered across North and South America. Its rise off the lows hasn't been as prodigious as Coeur D'Alene's has; rather than 200%, Hecla has accomplished a mere 100% gain in that period. For those interested, Hecla also has preferred shares and mandatory preferred shares available.
Silver Wheaton is a relative newcomer in the silver share universe, but its business model and capital base have thrust it to the top of the heap in terms of market cap. Silver Wheaton is essentially a mining royalty company, buying a percentage of the actual silver that's pulled from other companies' mines. The biggest of all the companies listed here, Silver Wheaton is currently valued at over $3 billion. Silver Wheaton bottomed at $2.50 in late October and now trades for $8.50 (and on April 22nd its trading around $7.48).
The last of the big four is Pan American Silver Corp., perhaps most famous for once being held by billionaire Bill Gates. Pan American's projects are focused in Central and South America, and the stock has doubled in the last six months, from $8.93 in October to its current $17.85 (April 22nd at $16.27).
The Bottom Line
Investors considering precious metals investments might be best to look at silver shares. The selloff in the metal, silver was vastly deeper than that in gold, and the upside potential may therefore be that much greater."
Although I also want to own GG, IAG, AEM and possibly Kinross (KGC) on the next substantial pullback (I may be wrong but they look too expensive to me right now, especially considering that we are near the May through October "shopping season"...although this year might be the exception to the rule), the silver miners may outperform them in the next 24 months.
So what might be going on with the price of gold (and silver) right now? It's definitely inching up and seems to be stuck in a tight trading range. The folks at Casey Research made the following comments yesterday morning:
Gold might have picked up a smidgeon of support as the dollar inched lower against the euro, and as oil erased early losses to track equities higher, but neither provided enough lift to get the metal moving.
The day’s rebound in equities probably worked against gold, as well, with investors developing an appetite for stocks later in the day.
That led Bayram Dincer, a Dresdner Bank commodity analyst in Zurich, to assert that, “Gold’s price is very sensitive to the U.S. equity market’s trajectory … We expect this correlation to exist in the short term.”
Ralph Preston, of Heritage West Futures, added that, “Risk aversion in the gold market is taking hold as optimism reigns supreme that U.S. government officials will do all that is necessary to shepherd the economy through the valley of the recession.”
Gold-mining stocks began the day strong, but faded back into the red. Nevertheless, Eric Le Coz, a member of the investment committee at Carmignac Gestion in Paris, said that they like the miners. “Because the recession will be prolonged in the advanced economies, you want to have some kind of insurance in the fog, and gold-mining equities are the best ones,” Le Coz said.
Whether “all that is necessary” actually turns out to be effective remains to be seen." But my hunch is that the road to permanent wealth and inflation protection is lined with gold and silver. In fact, in the next few years it might be the most enriching investment class since the Panic of 2008.
By the way, I like the Central Fund of Canada (CEF) anytime the NAV premium falls below 10% during times like these. Check it out at their web site for more details.
I also like ASA Limited (ASA) for diversity among gold stocks and holdings. Again, do your research carefully and check out their web site for a description of this closed-end fund.
Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please remember investments can fall as well as rise. And they will! - Advanced Investor Technologies LLC accepts no responsibility for any loss or damage resulting directly or indirectly from the use of this content. Disclosure: Long GLD, SLV, CEF, IAG,ASA
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This article has 17 comments:
TPTB have sealed the exits. Better think about digging in someplace and practice living off the flypaper of civilization.
Why does AEM, IAG keep coming up as better value over AUY and others?
When I look at metrics like P/S, P/CF, P/E, Debt/Equity, etc ... AUY is comes to top of all value metrics. Even PEG is much better. Why would any one buy AEM which has a P/E nad P/S ratio that is 8 times AUY. I keep hearing AUY getting knocked on Cramer with comments like ... " I just don't like it" ... with not facts behind statement. My question is: "What is it you don't like or about which you have a concern?"
Is it that analysts just don't like AUY's CEO Peter Marone?
I really don't get it?
AXU has been mentioned in Seeking Alpha numerous times and now that they're all cashed up, thank to a deal with Silver Wheaton some months back, and on their way towards production, you definitely have to take a look at them.
MAG could be the object of a takeover, not to mention they have an excellent resource there in sunny old Mexico, with the drills continuing to turn.
Other than that, the author's right about a limited selection of QUALITY silver miners available to those in the know about silver stocks....
On Apr 23 10:53 AM GUS100CORRINA wrote:
> A couple of questions for everyone?
>
> Why does AEM, IAG keep coming up as better value over AUY and others?
>
>
> When I look at metrics like P/S, P/CF, P/E, Debt/Equity, etc ...
> AUY is comes to top of all value metrics. Even PEG is much better.
> Why would any one buy AEM which has a P/E nad P/S ratio that is 8
> times AUY. I keep hearing AUY getting knocked on Cramer with comments
> like ... " I just don't like it" ... with not facts behind statement.
> My question is: "What is it you don't like or about which you have
> a concern?"
>
> Is it that analysts just don't like AUY's CEO Peter Marone?
>
> I really don't get it?
On Apr 23 10:53 AM GUS100CORRINA wrote:
> A couple of questions for everyone?
>
> Why does AEM, IAG keep coming up as better value over AUY and others?
>
>
> When I look at metrics like P/S, P/CF, P/E, Debt/Equity, etc ...
> AUY is comes to top of all value metrics. Even PEG is much better.
> Why would any one buy AEM which has a P/E nad P/S ratio that is 8
> times AUY. I keep hearing AUY getting knocked on Cramer with comments
> like ... " I just don't like it" ... with not facts behind statement.
> My question is: "What is it you don't like or about which you have
> a concern?"
>
> Is it that analysts just don't like AUY's CEO Peter Marone?
>
> I really don't get it?
On Apr 23 08:56 AM too old wrote:
> I agree with this line of thinking but since I am "too Old" I am
> turning over my portfolio to ZACKS for management and know they will
> sell my holdings in ABX, AEM, SLW, SSRI, SLV, GDX, AUY, EGO, IAG,
> PAAS, and AZK. I will continue to hold physical gold and silver.
>
On Apr 23 01:31 PM GMiki1 wrote:
> Own both. GG--not overpriced IMHO. Sabina Silver looks good. Owen
> some juniors. The market may be manipulated, yes, but these types
> of stocks will go up. Moreover, deflation is the stage prior to inflation.
I notice that silver is much more volatile than gold, and given its so much cheaper than gold, it gives a bit more "bang for the buck", and I'm sure the lower price/oz., makes it more appealing to small retail investors.
I think silver is sort of a "two fer" play; first, purely from a precious metal standpoint providing an inflation hedge, and secondly, its more of a bullish play on the economy, given that it has quite a few industrial uses (more so than gold), so demand should climb in a growing economy. In a nutshell, if things are going to hell in a handbasket, there's the upside of silver as a store of value/inflation hedge....and in good times, industrial demand helps the price.
On Apr 23 03:16 PM Marc Courtenay wrote:
> It is partly the geopolitical areas where they mine. North American
> producers like GG and AEM seem to get some kind of "safety premium"
> geographically. IAG also gets a premium as it is perceived as a "takeover"
> candidate. Keep the comments coming please!
I'll be following you so please keep your comments and observations coming.
HL did a horrible deal on their refinance. Management was sleeping, when they could have negotiated reasonable financing. Instead, they screwed shareholders. HL's management should all be fired.
DEZ was bought in last way which ran from 2002 - 2006.