Friday, October 1, 2010

Silver Stealth in Gold Bull Market

Silver’s Stealth in Gold Bull

By: Marco G.

September 30th , 2010

I’ll bet that you the reader thought that the Gold Bull was strong in September, didn’t you? Yes, Gold was strong gaining in price by 5% over the month and hitting a high of $1315 USD on September 30th before closing at $1308 for the end of the month. Well, would it surprise you to know that Silver made the stronger moves in September gaining 12.4% for the month and hitting a high of over $22.08 USD before closing at $21.78 for the end of the month.

Silver Stealth Bull

Silver is following the higher priced Gold in the Bull market for precious metals this fall. In the Google Trends chart following, the search term “Gold Price” turns out to be four times as popular as the search term “Silver Price”.

So, Silver is gaining more on a percentage basis, but in terms of popular awareness the Bull market for Silver is still operating in “Stealth” mode.

Silver versus Gold Gains for September

Continuing in my mode as a Silver enthusiast, the author decided to run some statistics on Silver stock gains for the month in comparison to Gold. Note that the author definitely said gains and did not use the word moves, so sure he is that there were gains across the board. In the chart following the author displays the surprising findings.

Using the GLD ETF as a proxy for the Gold price, the gain for Gold was 5.1% for the month from September 1st end of day to September 30th end of day prices. The source of the prices were from Yahoo Finance. The surprising thing is that the SLV ETF as a proxy for the Silver price gained more than twice as much as Gold coming in at a 12.4% gain. The usual explanations for the Silver strengths are two fold. Firstly, Silver being also an industrial metal as well as a precious metal collapsed more severely than Gold did during the 2008 economic crisis. Since then, Silver is only presently recovering to the highs reached since before the crisis. Therefore, Silver had a longer way to catch up percentage wise. The second reason, is that Silver is a much smaller market than for Gold and is therefore more volatile.

Gold Miners

The large Gold miners ETF, the GDX gained 5.8% for the month relative to the metal’s price gain of 5.1%. This would seem as if there was almost no leverage for owning the equities as opposed to owning just the metal. The author suspects that the market for large Gold mining equities may be saturated for lack of a better word. The Gold producers’ costs are higher due to the inflating energy and production costs plus the market just does not appreciate the large cap miners’ stories as much anymore. This is a trend that investors had better keep an eye upon. Large cap miners are just not providing any leverage to Gold presently.

Just for fun, the author decided to checked out the gain for the high quality stock Gold Corp (GG, TSX:G). Gold Corp’s gain for the month was a paltry .003%. Amazing! What is the story here? Well, if the reader recalls, Gold Corp is purchasing Andean Resources (ANDPF, TSX:AND) for $3.4 billion USD. The author expressed an opinion here that Gold Corp was paying too much. It appears that the market may agree with the author and is penalizing Gold Corp for this.

The smaller Gold miners in the GDXJ ETF gained a respectable 9% for the month. Juniors are providing a leverage of almost 80% more than gains made by the underlying Gold price. This is a trend that investors should be watching, as the author believes the market monies are presently moving to the smaller names in mining.

Silver Miners

Silver is where the big gains story is this month, with the shining metal sporting a 12.4% hike. The author is using the Silver ETF SLV as a proxy for the Silver price in the chart following.

The Silver miners are gaining even more by leveraging the Silver price. Under cover of the Gold bull market, the Silver producers as a group are enjoying their own “Stealth” Bull with double digit gains.

Silver Miners ETF SIL gains 15.1%.
SIL gained 15.1% and that is still a respectable leverage to Silver as the ETF is a mixed bag of large cap and junior Silver miners. The following four large Silver producers comprise over 50% of this fund: Silver Wheaton (SLW), Fresnillo PLC (FNLPF), Pan American Silver (PAAS), Industrias Penoles (IPOAF). The author reviewed the SIL ETF in a previous article here?

Silver Wheaton (SLW) gains 18.4%
Silver Wheaton (SLW), the author’s “crème de la crème” Silver royalty stock turned in a marvelous performance this month with a gain of 18.4%. Silver Wheaton buys into the operating mines production streams of the Silver metals. They supply needed capital early in the infrastructure build in return for a portion of the Silver production in following years. Silver Wheaton only has twenty plus employees and are highly leveraged to the rising Silver metals price. Here is the link to Silver Wheaton’s presentation at the 2010 Denver Gold Forum, last week.

Hecla Mining (HL) gained 10.9%.
Hecla is a mid-sized Americas based Silver miner with operations in the Silver Valley of Idaho and their large Greens Creek mine in Alaska. Hecla has turned around their debt issues in previous years and has bought complete ownership of Greens Creek. Hecla has two projects of San Juan in Colorado and San Sebastion in Mexico. Here is a link to Hecla’s presentation at the 2010 Denver Gold Forum of September 21st.

Silver Standard Resources (SSRI) gained 14%.
Silver Standard Resources is a mid-sized Silver miner with large development projects in Silver. Their Pirquitas mine in Argentina has just starting production early this year. Silver Standard has a long pipeline of projects including the huge Snowfield and Brucejack properties in northern British Columbia. Here is a link to their presentation at the Denver Gold Forum of September 21, 2010.

Again, the larger cap miners are displaying rather poor leverage to the underlying Silver price. The market is just not paying a higher leverage for large Silver miners with the exception of Silver Wheaton. The author suspects that possibly, some of the capital that would have been invested in these miners has shifted instead to the smaller cap junior miners.

Junior Silver Miners

Now this is where the real surprising story is, in the small junior Silver equities. The author’s selection of three Silver stocks has each turned in 30% to 50% gains for the month.

USA Silver Corp (USSIF, TSX:USA) gains 32.1%
US Silver Corp is a small Idaho Silver Valley based miner. The author has a previous article detailing their production and prospects here. There is much speculation about consolidation of the smaller miners in the rich Silver Valley and US Silver is one of the takeover candidates. The possible suitors include Hecla Mining (HL) and Coeur d’Alene Mines (CDE), both of whom have operations in the Silver Valley. US Silver has just completed a recent $6 Million financing with the aims of refurbishing a shaft and increasing Silver production.

Canadian Zinc (CZICF, TSX:CZN) gains 53.3%
Canadian Zinc is the Northern Canada Silver, Lead, Zinc mine built by the old Texas Hunt Brothers during the last Bull cycle of Silver in the early 1980’s. The Silver price crashed and the mine was abandoned when almost completed. Recently, Canadian Zinc has increased the resources by multiples and is at the stage of environmental permitting for water usage. Presently there is a deep drill program assessing the extent of the deeper stratas of the rich ore. A recent interview with Alan Taylor the COO and VP Exploration is posted here.

Genco Resources (GGCRF, TSX:GGC) gains 41.9%
Genco is a Mexican Silver miner turnaround story. This was previously a $4 stock, when a few years ago, it was mining Silver profitably. Because of politics and other issues, the stock has declined to where it is today. Recently with management changes, a new NI 43-101 compliant technical report and feasibility study completed the company’s fortunes are improving. On September 20, 2010, Silvermex Resources (SLVXF, TSX:SMR) offered a merger for Genco driving the depressed price up 30%. The author conducted an exclusive interview with the Chairman and CEO, James Anderson yesterday, discussing the merger and it is posted here.


The Gold Bull market for September was strong turning in a 5.1% gain for the month. Under the cover of the more visible Gold Bull market, the Silver metal gained 12.4% and Silver equities are turning in even larger and more surprising double digit gains. A select group of the smaller and more volatile junior Silver miners are turning spectacular gains of up to 50%.

Investing in this sector of the markets is not for everyone. The reader needs to understand that the Silver market is much smaller than Gold, especially for the smaller equities, and are much more illiquid causing much higher swings up as well as down.

Disclosure: The author is long Silver mining equities.

Important Disclaimer

The information and opinions contained within this document reflect the personal views of the author and should be viewed as food for thought and amusement only. The author may from time to time have a position in any of the securities mentioned. There are no guarantees of the accuracy, reliability or completeness of the information contained herein. Independent due diligence and discussions with one’s own investment and business advisor is strongly recommended. These writings are not to be construed as an offer or solicitation with respect to the purchase or sale of any security or as an endorsement of any product or service. We do not request or receive compensation in any form in order to feature companies in this publication. It is prohibited to copy or redistribute this document to any type of third party without the express permission of the author. This document may be quoted, in context, provided proper credit is given.

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