Value In Shares For Silver Investors
So, draws to a close (perhaps) one of the most volatile trading periods the world has ever seen. Major stock indices have seesawed through massive profit and losses for investors, as they have reacted to the various economic news releases. Not without justification will investors will be scratching their heads thinking “what next?”
However, every cloud has a silver lining.
As equity investors seek solace during a weekend before what could be another stormy few days for shares, perhaps they would be wise to consider the attraction of the precious metals as a safe haven for their equity investment money. Gold and silver are still looking good in the medium term as offering protection and growth in an uncertain world.
The United States have agreed to raise their debt ceiling, meaning that a country living way beyond its means will continue to do so. The trade off for Republicans in the house was a decrease in the amount of spending the government is to make over the next couple of years. What this really means is that the country will continue to borrow and spend on a massive scale for the foreseeable future.
After an initial relief rally, the equity markets plunged as the dollar eased further and sentiment for economic growth turned south. Fewer dollars spent by government means less money in the system: money that the government doesn’t actually have to spend in the first place.
With markets tumbling, US debt downgraded by Standard & Poor’s, and debt troubles persisting in Europe, there was only one course of action to take. The Fed has issued a notice saying that interest rates are likely to remain at 0% for the next two years, and then hinted that a further round of quantitative easing will take place later this year or early in 2012. In other words, they are going to encourage people to spend the remainder of their savings (no point in keeping money in the bank earning no interest), whilst printing money which will push inflation higher. Eventually there will be no personal savings in the States, and the people will be at the mercy of the markets completely.
And this is where the precious metals come in. The value of gold and silver are likely to increase as the safe haven of physical commodity gains in attractiveness. This is great news for those that invest in gold and silver, and collectors alike, and offers them, like equity investors, new opportunities to make gains through these turbulent times.
It might be worth remembering that silver prices have appreciated by nearly 30% since the start of the year. Compare that to America’s S&P 500 Index (a leading indicator of equity investment performance in the USA), which has seen a near 6% fall during the same period.
With the weakness of share markets, the silver mining stocks have also seen their shares trade lower. This is reflected in the price of the Exchange Traded Funds whose assets are the shares of silver mining. Consider, for example, the share price of Global X Silver Miners ETF, a fund that invests in the shares of globally traded silver mining companies. The share price has fallen this year from $27.13 to $25.13, a decrease of around 7% and roughly in line with the performance of global shares during the same period. The story is the same across all the silver mining ETF’s.
Meanwhile, the ETF’s that trade upon the silver price – whose assets are physical silver – are trading in line with the increase in the price of physical silver. The largest of these, iShares Silver Trust, is trading at $37.91, versus a price of $30.18 at the end of last year: a rise of around 26%.
This seems to be somewhat of an anomaly. Silver is gaining in value, which means the value of mined silver is higher.
The costs to mine that silver are not rising at the pace at which the output silver is. At some stage, which may not be far off, the profits of these miners will increase likewise. With the share prices of the silver mining companies moving in line with the broader market, it would appear that the markets have not yet woken up to the possibility of massively increasing profits at silver miners.
The shares of silver miners could be due for a re-rating, though there will be both winners and losers amongst the individual silver mining companies. Choosing the winners could be a difficult and time-consuming process.
The beauty of the silver mining ETF’s, from an investor’s viewpoint, is that they invest in a wide number of individual companies. This means that investment in an ETF will give a wider exposure to the silver mining sector.
Of course, investors should always conduct their own research before making an investment decision, but as has been discussed in BuySilver.orgs silver investment guide, ETF’s are another way for silver investment to be
made.
