The Best Way to Play Rising Silver Prices Silver stocks are seeing a comeback and some good money has been made in August and September. Spot silver is $35.00 an ounce; it still has a long way to go to catch up to the recovery in gold prices. However, as an industrial metal, silver is used in a lot more items than gold and any recovery in manufacturing (particularly in automobile manufacturing) is beneficial to the white precious metal. A lot of silver mining companies hoarded their silver production earlier this year in anticipation of higher prices. Now that silver prices are moving up, it’s a good guess that silver mining companies will be reporting much-improved earnings results for this quarter and the next. There are quite a few good silver stocks in the marketplace today, and there are also a lot of alternative types of funds and trusts that let you bet on silver prices, many using leverage. For example, one such derivative-type security that benefits from rising spot silver prices is ProShares Ultra Silver (NYSEArca/AGQ). This exchange-traded fund (ETF) seeks to mimic the performance (up and down) of spot silver prices by 200%, meaning that if silver prices go up 10% in a day, the fund price should move 20%. The fund uses derivative securities to make this happen, and I think these types of financial instruments are very useful for investors who have a strong conviction about changes in precious metal prices and would like to express a position without having to speculate with futures contracts. ProShares Ultra Silver’s chart is below; you can see the recent big move in silver prices.
Chart courtesy of www.StockCharts.com As far as silver stocks are concerned, most of them tend to be large-cap, compared to the universe of gold mining companies. There are also some U.S.-listed silver stocks with operations in China, many of which are down due to the stock market’s lack of confidence in Chinese reporting standards. Silver Wheaton Corp. (NYSE/SLW) is a big name among silver stocks in the large-cap space. This stock is highly liquid and boasts a strong following among institutional investors. Fortuna Silver Mines Inc. (NYSE/FSM) is a penny stock in the silver mining industry that’s growing at this time, too. Below is Fortuna’s stock chart:
Chart courtesy of www.StockCharts.com I think both gold and silver stocks are poised for further price appreciation this year and going into 2013. Economic recovery favors silver, while global turmoil favors gold. Regardless, investors are wise to have a little exposure to silver going forward because of the earnings growth potential. As a group on the stock market, silver stocks should have quite a bit more room for advancement, due to the recent correction in precious metals.
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