Silver Mining Stocks Outperform Equities And Cash Silver

Posted by admin on Saturday, September 24th, 2011

Back in early August, this blog predicted that the shares of silver mining companies were due a re-rating and highlighted the investment opportunities for equity investors in this sector. It would seem that this re-rating of valuations has begun, as the performance of the sector as a whole is indicating.

On August 13th 2011, we analysed the cash price of silver and the movement of the share prices of silver mining companies and also compared these to the S&P 500 index over the last twelve months. Our conclusion was that the shares of most silver mining companies were lagging the advance of the cash silver price, and would perform well when compared to the equity market in general as well as physical silver.

In any sector of a market there will be winners and losers, which is why we picked out the Exchange Traded Fund Global X Silver Miners, a fund which invests in the shares of globally traded silver mining companies. At that time, the share price of this fund had fallen by around 7% since the beginning of 2011: in line with the performance of the world’s share markets at that time. We pointed out that the share price of iShares Silver Trust – the largest ETF based on the price of physical silver – had risen by 26% over the same period. This, we felt, was an anomaly that would be corrected over the coming months, irrespective of the price of physical silver.

And so it is proving.

Since our article on August 13th, the S&P 500 Index has fallen by over 1% whilst the iShares Silver Trust has risen by 1.15%. Cash silver has again out performed the broader equity market.

But now consider the performance of the Global X Silver Miners ETF, whose shares have increased by over 4.4% in the same time. This is, by any standards, a good performance against the broader market, and against the cash silver price.

Of course, as we said on August 13th, there are individual winners and losers within the silver mining sector: for example, Silver Wheaton’s shares have moved up by 9%, Silver Standard’s have fallen by 5.3%, and Great Panther’s have increased by 7.5%. Picking individual winners is notoriously difficult, but this recent out performance is an indication that the market is starting to become aware of the attractiveness of the silver mining sector. Expect analysts at major investment houses to pick up on this potential in the coming weeks and months.

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