Silver Stocks: Cheaper Is Better

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"Right now, silver is in great position to do well over the short term and long term."

As a precious metal, silver has been getting a lot of attention as the U.S. dollar shows continued weakness. If you’re looking for a long-term investment in silver, aside from silver ETFs, silver mining stocks are the way to go.

As with all mining stocks, each of the major silver mining stocks offer many different qualities. Some of the higher-cost producers offer greater leverage. Others offer greater value and a bit more downside protection. Still others offer very large silver reserves compared to the others.

The key factor we look at first when comparing sector-specific mining stocks is costs. I’m looking for value and limited downside risk. In mining stocks that means low costs. Low-cost operators provide downside protection because if commodity prices fall, they’re the last ones to close down. Depending on their costs, the other mix of metals produced, the low-cost producers can usually survive extended downturns.

When it comes to safety, the lower the cost the better. When it comes to leverage, the higher the cost the better. We also have to look at relative performance to see how well these stocks have done during the last time silver prices went on a decent run.

Silver stocks have been hit pretty hard over the past year and a half. There are plenty of explanations for the decline. Very few sectors have defied the overall market decline. Also, market volatility has been heavily impacted by sector rotations. Over the last year or so, the impact on individual sectors has been extreme. Finally, there is a general sense that this time around isn't "the big one" for precious metals.

The most important historical silver investment valuation method is the gold/silver ratio. Today gold/silver ratio sits at a relatively high at just over 63 (Gold -$939.4/Silver - $14.86).

Right now, silver is in great position to do well over the short term and long term. It has all the attributes to perform in any type of economic environment. Whether we face deflation (and the inflationary money printing to offset it), inflation, or hyperinflation, silver (and therefore silver stocks) will go much higher.

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