Silver Mining ETF- Tried & Tested Investment Tool

Nov. 08, 2012 4:23 AM ET
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Contributor Since 2012

The last decade's performance along with an affirmative logic to its future growth has compelled even the likes of Jim Roger, the celebrated investor to comment that investment in Silver is a better choice than Gold and he strongly recommends a Buy on every lag in the pricing of the metal. Interestingly, views of the likes of Jim Roger & others are not denying the superb past performance & growth potential of Gold, but why invest in it when you have something even better?

Historically Silver has played a second lead to Gold. And as a sector it is quite small. In spite of the vast wealth that has been created by investing in silver vehicles, there are less than 150 main silver stocks world-wide and even less than 30 major Silver producers are listed on various global indexes. Most important reason being the lesser geological availability of the mineral ores. Another noteworthy reason is massive undervaluation of the silver stocks, which makes investments in Silver metal virtually risk free at this point and time. A live example is TAHOE Resources which has been attracting fair amount of investors' attention in recent times. The company has a major Silver mine in Guatemala which will start producing the metal only after 2014.

A benchmark index with enough historical data is also not available for silver; hence one can follow HUI which basically comprises of largest Gold Stocks & some very large silver stocks of the world.

What is the best way to invest in Silver?

When investing in Silver sector, an investor is offered three basic choices. One can bet on the physical metal on commodity indexes, options market trading or investing in Silver mining stocks.

Silver Mining companies represent the strongest case. Along with first mover's advantage they have as with any mining sector, there is a huge industrial demand for Silver's existing applications & a positive growth chart for the application that are to exist.

This is almost a monopolistic sector with less than 30 producers globally & even lesser primary mines on the planet. The growing demand has to be met with increased productions of the existing mines & the Silver mining companies will naturally gain through their ramped up cash flows. To minimise the risk on your investment, Silver Miner ETF is but the first choice. It reduces dependence on individual company downside chances & exposure received is evenly spread out demographically.

Among major producers is Silver Wheaton [SLW] a unique company with a dual business structure being a mix between a royalty company & a producer.

Fresnillo PLC & Industrias Penoles CP share an interesting relationship where Penoles having more than 75% stake in Fresnillo.

Cour de Alene Mines & Hochschild mining are distinctly placed with both having 10 million + ounce of primary Silver Production.

Silver Mining Fund [SIL] is a sound bet with about 50% fund allocation in the afore said companies along with Tahoe Resources [4.08%], Hecla Mining [5.41%] & First Majestic Silver [5.31%] also featuring in the top ten stocks of the fund. Silver Wheaton at 13.4% is the heaviest stock in the fund and a very apt anchor due to its global placements & a hybrid business model.

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