Why silver is far ahead in the commodity race
Gold may glitter, but silver has risen faster with its industrial demand, says a U.S. advisory whose buys include two Canadian silver stocks.
Enough about gold. Let’s hear it for silver.
It’s no surprise that precious metals have soared in these uncertain times. They are widely supposed to represent a store of value that will anchor investment portfolios in times of trouble.
Gold generally grabs most of the headlines. Yet it would be a big mistake to ignore silver, and silver stocks, says one U.S. advisory.
The Complete Investor has nothing against gold — it certainly holds its fair share of gold investments in its Growth Portfolio.
But if you look at the progress of commodities since the dark days of the crash of 2008, says this advisory, “there is no question who the star was. It was silver.”
Silver prices are setting 30-year highs. That success stems from the fact that it is not just a precious metal, but an industrial staple as well.
The advisory explains the allure of silver and profiles its favourite investments in the metal. These include two Canadian stocks, one of which it has just added to its Growth Portfolio.
Silver rides high
Silver has crested above US$40 an ounce. That may not seem like much compared to the $1,455 gold has achieved, but it represents an enormous rise over the past three years.
The advisory publishes a chart that follows stocks, gold, silver and copper from the market high of March 2008 through the subsequent crash and on to the present.
Stocks, represented by the S&P 500 Index, haven’t really advanced at all. They may have doubled in value, but only “if you measure your cycle from the depths of the financial crisis.”
On the chart, silver rides high above stocks, gold and copper. There are a couple of reasons why that should continue.
Virtually irreplaceable
“The rise in most commodities can be traced to the demand for for them among the industries of the developing world,” says the advisory, “particularly China and India.
“And among those industries, silver is virtually irreplaceable.”
It is the best thermal conductor and the best electrical conductor, which makes it a favourite for electrical conjunctions. It is also a prime component in optics, a catalyst in industrial chemistry and prevalent in automobiles, especially in safety applications.
Because of its exceptional conductivity, it is also critical to efficient energy use in alternative energy and other sectors. Not least, it is a vital component in solar panels and pressurized-water nuclear reactors.
With all the turmoil in the Middle East and Japan, says the advisory, it is easy to see why the demand for silver would increase, linked as it is to power generation and energy conservation.
Yet there is also the matter of silver coins.
Silver means money
Silver’s history as a coinage is even longer than gold’s. In at least 11 languages, the words for “silver” and “money” are the same (“argent” in French, for example).
Yet gold has been favoured as a monetary metal for the past century. It’s easier to store large amounts of it, it’s more valuable by the ounce and it’s less susceptible to tarnish and oxidation.
“Still, if you look at the amounts of silver available compared to the amount of gold, the ratio of gold to silver does not make sense.” Valued in terms of relative scarcity, a silver/gold ratio of 10:1 would make sense, adds the advisory. But the ratio of 36:1 based on current prices does not.
“The public appears to have caught on to the fact, though. Individual demand for silver coins has been soaring — which is one reason for the strong performance of the metal.”
The latest discovery
It is just possible that silver prices may rise so high that governments would intervene to put on the brakes, precisely because it is a key industrial metal. But “the danger price” would probably be in triple digits, says the advisory. In the meantime, accumulate silver stocks.
One small-cap silver mining stock it likes is Pan American Silver (TSX-PAA; NASDQ-PAAS). “It has limited debt, steady production, and the possibility of a significant bump in output (up to 15%) if its Natividad mine [in Peru-Ed.] goes online in 2013, as currently scheduled.”
Pan American also has mines in the U.S., Mexico, Bolivia and Argentina. It trades at $39.17, a few dollars off its December high, and yields 0.2 per cent on its modest $0.10 dividend.
Its latest discovery is Tahoe Resources (TSX-THO; OTC-THOEF), which last year became the owner of a big silver mine in Guatemala, the Escobal project. This earned it a spot in the advisory’s Growth Portfolio.
Tahoe purchased the mine from Goldcorp (TSX-G) and is also led by the former CEO of Goldcorp, Mr. Kevin McArthur.
The mine’s inferred silver resources amount to 71.7 million ounces, and there is gold, copper and zinc to be had as well. When the mine starts producing, probably in 2014, it will be one of the lowest-cost operations in the industry, at about $6 per ounce.
The stock lost some ground with the markets this morning before turning back up and is trading at $21.90. There is no dividend.
Before purchasing this stock for its Growth Portfolio, the advisory sold Silver Wheaton (TSX/NYSE-SLW), the firm that buys silver streams from mines and sells them on to the market. The stock has done well, but this advisory is worried that “gold mining companies that sell off their silver to the company will demand far higher prices once existing contracts expire.”
The stock trades at $40.98. In March, it did begin paying a dividend of $0.12, which yields 0.3 per cent.
Not least, says the advisory, if you wish to hitch your wagon to the price of silver, buy iShares Silver Trust (NYSE-SLV) which has been moving up the charts and trading close to its 52-week high at $40.32.
This advisory can’t make the point too firmly. All that glitters for investors is not gold — a lot of it is silver.
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