Endless easy money policies from central banks around the globe have undoubtedly created a long-term tailwind for gold and precious metals. In recent articles I have suggested that gold prices may also have tailwinds in the form of extensive inflationary pressures and have recommended picking up the gold miners as a potential way to play it, in addition to physical assets or one of the ETFs that tracks gold prices such as the SPDR Gold Trust (GLD). I believe all precious metals will benefit from inflationary actions of by central banks worldwide in the next few years. In the present article I would like to highlight three ways to invest in silver, given that I have stated that it could outperform gold in the next year.
I think the precious metals are opportunity buys right now at current prices. I always recommend investing on dips and after the drop in silver prices we have had in the last few weeks silver seems to be presenting another lucrative entry point. There are three ways investors can get exposure to silver. My top approach for silver exposure is purchasing physical silver bullion and coins, followed by purchasing shares of ETFs that track silver prices, and finally through the stock of the individual silver companies/miners.
Physical bullion or coins: This is the best way to invest in silver in my opinion. There are numerous dealers in most cities and on the internet where you can buy silver bullion bars and/or coins. I not only consider physical silver as a wise investment given government stimulus, but I also consider it to be a form of insurance in case of a total meltdown of the fiat currencies and modern financial systems we have in the world today. If you decide to invest in physical silver assets, do so by only buying from a reputable dealer. This is especially important if you're purchasing over the internet, where you will want to look for a well established dealer with a long history and stability in the business. The only downside from internet purchases is high shipping and insurance costs as well as the possibility of a required minimum purchase. Whenever possible, buy locally to avoid such excessive shipping and handling fees.
Silver ETFs: One option for those who do not feel comfortable with purchasing physical silver is through an ETF. The iShares silver trust (SLV) is a popular investment that seeks "to reflect the price of silver owned by the trust, less the trust's expenses and liabilities. The fund is intended to constitute a simple and cost-effective means of making an investment similar to an investment in silver. Although the fund is not the exact equivalent of an investment in silver, they provide investors with an alternative that allows a level of participation in the silver market through the securities market." The fund has $8.8 billion in assets with an annual expense ratio of approximately 0.5%. Shares in SLV currently trade at $31.08 and have a 52 week range of $25.34-$36.44.
ETFS Physical Silver Trust (SIVR): This is another less popular ETF that tracks the price of silver. SIVR is "an investment trust. The trust holds silver bullion and issues shares in exchange for deposits of silver and distributes silver in connection with the redemption of baskets. The investment objective of the trust is for the shares to reflect the performance of the price of silver, less the trust's expenses and liabilities. The trust is designed to provide an individual owner in the shares an opportunity to participate in the silver market through an investment in securities." SIVR has about $600 million in assets, far less than the $8.8 billion in assets of SLV. In contrast SIVR has an expense ratio of 0.3% which is 20 basis points lower than the expense ratio of SLV. Over recent months the performance of SLV has been superior to SIVR. SIVR currently trades at $31.77 with a 52 week range of $25.92-$37.10.
There are other ETFS that invest in silver and I consider them riskier than the aforementioned SLV and SIVR.
ProShares Ultra Silver (AGQ): This ETF applies a 2X exposure leverage to silver using forward contracts and futures. The investment seeks "to provide daily investment results (before fees and expenses) that correspond to twice the daily performance of silver bullion as measured by the United States dollar fixing price for delivery in London. The fund invests in any one of or combinations of financial instruments (swap agreements, futures contracts, forward contracts and option contracts)." AGQ currently trades at $50.10 and has a 52 week trading range of $34.50-$74.65.
Powershares DB Silver (DBS): This investment fund seeks to "track the price and yield performance, before fees and expenses, of the Deutsche Bank liquid commodity index optimum yield silver excess return. The index is a rules based index composed of futures contracts on silver and is intended to reflect the performance of silver." It currently trades at $55.31 with a 52 week range of $45.22 to $65.44.
Stocks: Finally there are the silver companies/miners to consider for exposure to silver. The best way to gain exposure to silver miners as a whole is through the silver mining ETF (SIL). For those willing to take on more risk and do the necessary homework an individual silver company or miner could be considered in place of SIL, which potentially could offer better returns.
A few of my favorite silver companies are:
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." SLW currently trades at $39.26 and has a 52 week trading range of $22.94-$40.91. On average about 4.8 million shares exchange hands daily. The company trades at a 26 multiple but only a 0.99 PEG ratio and currently yields 1.0%.
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." Shares of the company currently trade at $22.19 with a 52 week range of $18.44 to $24.46.
Silvercorp Metals (SVM): SVM engages "in the acquisition, exploration, development, and mining of precious and base metal properties in China and Canada. It operates four silver, lead and zinc mines comprising the Ying, TLP, HPG, and LM mines located in the Ying Mining District in the Henan Province of China. The company also holds interests in the XBG silver, gold, lead and zinc mine with a mining permit covering 26.36 square kilometers; and the XHP silver-gold, lead and zinc mine comprising a 14 square kilometer mining permit located in the Ying Mining District in Henan Province of China. In addition it engages in operating the BYP gold, lead and zinc project in Hunan Province, as well as mining at the GC silver, lead and zinc project in Guangdong Province in China." It currently trades at $5.88 with a 52 week trading range of $4.89-$9.79, with average volume of 1.3 million shares exchanging hands daily. It has a multiple of 14 yet a high PEG of 4.3. SVM does pay a decent dividend as it yields 1.7% annually.
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." It currently trades at $21.30 a share with a 52 week range of $13.49 to $30.79. It trades at 10.8 multiple with a 1.52 PEG ratio and yields 0.9% annually.
Bottom line: Precious metals stand to gain significantly from balance sheet expansion at central banks. While gold is certainly an excellent play off of the stimulus coming from governments worldwide, I believe silver and silver companies may outperform gold in the next year. While this list is not exhaustive it represents my preferred ways to gain exposure to silver. At current levels I believe silver and silver companies are opportunity buys, especially for the long-term investor.