The Silver Bulls Are Back


". . .listed silver stocks have pulled a fast one on their gold peers."

Temporary it may or may not be, but listed silver stocks have pulled a fast one on their gold peers, and currently represent the best-performing global resources subsector. The two metals share the "precious" classification, but vary vastly in two significant ways.

Silver bullion is trading just above USD 11/oz, 48% lower than its record level seen in March 2008, and far more than the fall in the gold bullion price, currently a modest 18% lower than record levels set in the same month. And while the majority of mined gold ranks as primary production, around two-thirds of silver production ranks as a by-product, mainly on base metal and gold mines.

The universe of listed silver bullion stocks, with a current market value of some USD 10bn, is, moreover, significantly smaller than the aggregate for gold miners, sitting just short of USD 170bn. In short, the silver market is highly specialized, and as a matter of record, to repeat, currently the best performing subsector within global resources, and also likely the best performing global subsector of any kind.

Measured on a weighted basis, listed silver stocks have "bounced" 111% from low points, compared to 66% for the world's 100 biggest mining stocks, and 89% for listed gold stocks.

On the fundamentals, the consensus of the analytical community appears to be bullish for silver bullion supply-demand supporting rising dollar prices over the longer term. The ratio of the gold to silver bullion price is currently around 77 times, far above its 5- and 10-year averages of between 55 and 60 times. A year ago, the ratio was below 50. For investors believing that silver is historically more volatile than gold, a reversion to the mean longer term ratio—regardless of what gold bullion does—is simply bullish for silver.

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