After recently reaching 31 year highs, the price of silver has seen a rapid drop over the past couple of days. It's very clear to me that people are buying silver because other people are buying silver. The average investor is not buying it to use and they are not buying it for dividend income because there is none. For the most part, the average investor is buying into a speculative frenzy with the hope of selling it to someone else for more later.
While silver bullion reached about $50 per ounce over the past week, the silver stocks were not trading at new highs the way bullion was. This was a clear sign the market did not believe the $50 per ounce price for silver was remotely sustainable.
There are investors who say silver is a great hedge against the declining dollar, but that is only true at much lower price levels. Silver investors who bought at $45 or $50 per ounce have lost more value in a couple days than the dollar has lost in years. Silver was a great hedge at $5, $10 and $20 per ounce, but at $50, $45 or so, I'd say cash is king even if that cash is the U.S. dollar.
A couple of days ago I suggested in this article that silver should be sold: Why It's Time to Sell Silver Stocks and Buy Bank of America. Since then, silver and all the stocks mentioned have dropped, some as much as about 10%.
If you are still not convinced that silver has reached bubble-like valuations, take a look at the most popular articles for the past several days on Seeking Alpha. More often than not, silver is the subject in the top 5 most popular articles every day. You can see that here.
This is another indicator which shows you how heightened the interest in silver is right now, and that is not sustainable. With so many sectors to invest in, ask yourself if silver belongs in the top 5 on Seeking Alpha nearly every day? That's one reason why it's been smart to sell silver at the extremely high levels reached in the past few days. It's also why I would not invest in this sector until a major correction (which we might be seeing now) and stabilization takes place. Based on that, I have listed a few stocks that are worth considering when some of the silver euphoria fades away and the current correction has played out:
Pan American Silver Corp., (PAAS) is trading at $34.53. PAAS is a silver and precious metals company based in Canada. These shares have a 52 week range of $22.21 and $43.06. The 50 day moving average is $37.29 and the 200 day moving average is $33.26. Earnings estimates for PAAS are for a profit of $2.74 per share in 2011, and profits of $3.01 per share in 2012. These shares actually held up well yesterday in spite of a drop in both silver and the markets overall. It makes sense to buy these shares at around $33 or less.
Coeur d'Alene Mines Corporation (CDE) is trading at $28.49. CDE is a silver and precious metals company based in Idaho. These shares have a 52 week range of $13.96 and $37.59. The 50 day moving average is $32.62 and the 200 day moving average is $24.26. Earnings estimates for CDE are for a profit $3.11 per share in 2011, and profits of $3.33 per share in 2012. These shares also held up well yesterday in spite of a drop in both silver and the markets overall. It makes sense to buy these shares at around $27 or less.
iShares Silver Trust (SLV) is trading at $38.27. SLV is a silver exchange traded fund that tracks the price of silver. These shares have a 52 week range of $16.73 and $48.35. The 50 day moving average is $37.88 and the 200 day moving average is $27.57. Silver bullion should have some support around $33 and $30 so I would only start buying again if it hits those levels, or goes below them.
Proshares UltraShort Silver (ZSL) is trading at $19.45. ZSL is a silver ETF that shorts silver with leverage. These shares have a 52 week range of $12.83 and $164.80. The 50 day moving average is $22.99 and the 200 day moving average is $62.42. These shares have been trading near record lows until just the past few days, when share price surged as silver prices plunged. I would not start a new position in this now, but if silver reaches euphoric levels of $50 or more again, this is worth considering.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Disclaimer: The data is sourced from Yahoo Finance and Stockcharts.com. The information and data is believed to be accurate, but no guarantees or representations are made. Rougemont is not a registered investment advisor and does not provide specific investment advice. The information contained herein is for educational purposes only.