Silver Juniors Remain Undervalued
Source: Jordan Roy-Byrne, The Daily Gold (10/4/10)
"In a fair world, the junior index would be trading above its 2008 high."
Let's take this a step deeper by looking at the factors that are important for silver stocks. Because [many] silver companies are Canadian companies, we look at the Canadian price of silver. Oil is a cost in mining, so we look at the silver:oil ratio. Base metals tend to make up a fraction of the output of silver companies, so we look at the price of base metals.
First, the Canadian price of silver is about 10% above its 2008 high. Secondly, the gold:oil ratio is above where it was at the 2007 peak—sans the spike in early 2009—is basically at an 11-year high. Base metals prices are about 20% below their peak in 2007.
This analysis shows that the silver stocks, as a whole, should be trading higher than they were at their peak in Q207. Despite the recent surge in the silver juniors, they remain well below their 2007 peak. Hence, there is value to be had. It may not reveal itself instantly but likely will by the time we are 6–12 months in the future.
The Daily Gold
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Disclosure: Positions in silver juniors.