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Profiting from Silver Miners

Written By Brian Hicks

Posted August 14, 2013

The Standard and Poor’s 500 Index has been riding high for a while now, and because of this, many analysts believe it may be about to end its bull run.

Mining equities have been somewhat weak against the S&P 500 for a while, so many may assume that if the latter experiences any correction, the former is going down too. But according to Scott Pluschau of SilverSeek, the Global X Silver Miners ETF (NYSE: SIL) is about to bounce upward as a result.

silver coins stacksThis would be in line with recent events that have seen silver prices reach their highest levels in two weeks. Last Friday, the PureFunds ISE Junior Silver ETF (NYSE: SILJ) was up 9.8 percent. Monday saw the Global X Silver Miners ETF up 5.6 percent, coming on top of a 5 percent rise last Friday.

This puts silver miners around the limits of their 50-day moving average, and the last time silver exceeded short-term trendlines was in late 2012.

According to Bloomberg, we’re seeing these rises – in gold as well as silver – due to increasing anticipation of heightened demand out of China. It appears the Chinese economy has begun showing signs of renewed growth. July saw China’s industrial output rise past analyst expectations.

Metals in general approved; the S&P GSCI Spot Index, which measures 24 raw materials, rose 1.1 percent. As of August 9, silver futures for September delivery were up to $20.407, or a 1.1 percent bump upward on the Comex. Previously, prices had touched $20.53—the highest since late July this year.

Obviously, the improved outlook for silver means good times for silver miners. That’s a very good thing, considering that silver miners have taken quite a beating so far this year.

Nevertheless, bear in mind that current practices and price levels still mean hard work for silver miners.

A Few Names to Keep in Mind

In a recent interview, Chris Lichtenheldt of Dundee Capital Markets discussed eight silver companies you should keep your eye on for various reasons.

The first thing to keep in mind is that now that we’re past $20 per ounce, it’s likely silver’s drop is over—at least for the medium term. The drop itself was somewhat abrupt, meaning confidence is likely going to take some time to restore itself.

At the very least, as far as futures are concerned, the sustained drop in net long positions on the Comex has ceased—meaning people aren’t moving to short silver nearly as much now. ETFs have stabilized as well.

However, given that the U.S. Fed is soon to undergo major changes, the markets are definitely nowhere near a desirable level of stability, and volatility is to be expected. The good news emerging from China should spur things onward for a while, but things could also head into a rough patch should unwelcome news emerge from the Fed.

One other important thing to consider is the anticipated physical shortage of silver. There have been a spate of reports that mints are selling out of silver coins, that miners are experiencing difficulties keeping supply going, and so on. That indicates a likelihood of silver prices moving upward over the longer term, well past the present uncertainty.

Chris singles out Tahoe Resources Inc. (NYSE: TAHO) as a company offering silver that’s at a higher grade than that offered by nearly all the other primary silver producers, meaning investors are going to show a distinct preference here. Tahoe generally appears to be strongly positioned despite a tough market.

Higher-grade silver is something investors are going to prefer, since mines that can adapt quickly to lower price levels will be seen as more attractive. For Tahoe, the entire asset consists of high-grade ore, which again distinguishes it from most competitors.

Silver Wheaton Corp. (NYSE: SLW) is another one he singles out, mostly for its cost structure and relative exposure to silver prices. Other companies Chris mentions as worthwhile investments include First Majestic Silver Corp. (NYSE: AG) and Fortuna Silver (NYSE: FSM). The first one shows effective finances and has a good operating track record, while Fortuna has attractive Mexican assets that show interesting potential for the future.


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