Well yes, every single time, since the beginning of the earth. There are incredibly few “sure things” in investing, but this is one of them.
The trick is more about getting the timing right, rather than knowing the outcome. And I’d better say that this is all in my opinion before my lawyer falls out of her chair! That will also save me having to go back later and drop those words in once she reads all this.
If gold prices stayed exactly where they are today, silver would need to increase (and almost certainly will). If gold declined, the drop in silver prices would need to happen at a much slower rate, in terms of percentage.
Put simply, the gold/silver ratio always moves back towards the 60 level – 60 ounces of silver to one ounce of gold. Right now, the ratio is leaning heavily in gold’s favor, but it will start tipping back towards silver in the coming months and years.
If gold rose (as we absolutely expect that it will), silver would need to appreciate at an even quicker pace.
The most likely scenario in our analysis puts:
- gold near $1,800 (a 42% increase from current levels)
- $30 per ounce for silver, which would end up representing a 92% price jump from where it trades now
Global silver production is expected to drop this year. Meanwhile, demand is outstripping supply already and has been for the last number of years. Combined with the impressive strength in precious metals lately, and the unsustainable gold to silver ratio, we expect the white metal to rise to prices nearly double what they are currently.
While the underlying commodities should do very well in the opinion of myself and my team, the actual gold and silver mining companies should do even better. (Of course, unlike with a commodity, any time you are invested in a stock, you also have to deal with all the human-related issues; theft; poor business choices; death; fraud; employee poaching; worker strikes; alcoholism; government regulations; yada yada…)
If you are interested in investing in a silver production mine, be cautious! Even if commodity prices rise, that will not automatically mean that the related companies would increase in price.
Our process looked into several dozen silver miners, and we will be revealing our top selection to subscribers this week. However, besides a very few high-quality selections we’ve uncovered, the vast majority failed Leeds Analysis, mainly because these stocks:
- operated in politically unstable nations
- were bleeding cash
- had short reserve-life-indexes (how long until they run out of recoverable resources)
- used too much future hedging (pre-sold their commodity at current prices, which means they will get less benefit from rising silver prices)
- were poorly financed
- issued far too many shares in order to raise operational funds (which dilutes the value of the stock)
- had too many permits to acquire, or too many administrative hoops to jump through
- were many years away from bringing their mine up to production status
There are so many red flags, warnings, and operational obstacles which most people will not notice. In the end, they may be confused as to why the price of silver doubled, but their investment went the other direction!
When finding the best silver mining stocks to invest in, you will want to look for certain things. With any company, focus on some of these important aspects, including but not limited to:
Producers, Not Explorers!
Most mines are exploration companies, meaning that they are “looking” or searching for the metal. Even once they think they’ve found something, they have several different categories of definition; inferred; probable; proven; measured, indicated.
This is kind of like saying, “we think there may be something underground…” Then, “it is probably there…” And finally, “ok, we’ve taken all the core samples and done all the test, and we know there is silver a couples miles deep.”
Then all they need to do is take several years fighting for permits, agreeing with native and aboriginal groups, and (depending on the country of operations) very likely pay a lot of bribes. Then it can take several more years to develop the actual mine.
On the other hand, a producing mine has already cleared all these hurdles. They are pulling silver out of the ground, and selling it. They have actual revenues, and all the heavy lifting has already been done.
Minimal Hedging
Mines often “pre-sell” their future production, in exchange for cash infusions. For example, they may make a deal with another miner, or financer, whereby they agree to provide X number of ounces of silver, at or near current prices.
The more a mine forward-hedges, they more they are locked into current prices. Then, even if silver quadruples, the contracts mean the mine still has to sell the commodity at previously agreed-upon (and much lower) levels.
Production Cost-per-Ounce
Just because two companies both mine the same commodity, it does not mean they are equally efficient. You need to look into the production-cost to bring an ounce of silver above ground and sell it.
While two miners may look the same from all other aspects, one may be producing silver for $9 per ounce, while it is costing the other $14 per ounce. You could probably imagine which is the superior company, from an operational perspective.
Stability
As many mines operate in countries all over the world, some have to deal with corrupt governments, military conflicts, worker abductions, employee strikes, terrorism, and more.
With mining companies, always look for those which operate in stable and friendly regions. Think Canada and Peru, rather than Iraq and Chechnya.
The Big (Silvery) Picture
Silver is highly likely to increase in value at a faster pace than gold right now. This will be the case until the gold/silver ratio normalizes, with one ounce of the yellow metal being worth 50 to 60 ounces of the white metal.
In addition, we anticipate that all precious metals (and most commodities, in fact), will trek to higher levels. Added to the recovering gold/silver ratio, this will mean even more impressive performance from silver.
Meanwhile, the supply/demand metrics for the metal imply that there will not only be a bullish trend – but that there may even be a downright shortage! In such an event, or even without it getting to such an extreme, silver has significantly more upside than downside in our opinion.
Just wait a few months… you’ll see exactly what we mean.