It finally happened. Through months of struggle, silver has finally managed to crack the $20/oz mark.
In past newsletters, we touched on the positive signs of why silver, along with gold, should outperform and continue to see new highs. After months of what many believed to be market manipulation (see the Silver Conspiracy), silver finally took the edge and surpassed the $20 barrier.
Although a few dollars above recent highs may not seem important, there's much more to it than meets the eye. The Gold to Silver Ratio (GSR) has finally broken the technical downside. This not only signals a strong push in silver prices, but it also means an increase in both industrial and investment demand for silver.
For the last five thousand years, the GSR has been somewhere around 16 to 1. This means that one ounce of gold can buy 16 ounces of silver. Coincidently, that ratio remains relatively constant for the amount of silver versus gold in the world. For every ounce of gold in the ground, there is roughly 17.5 ounces of silver (see the Silver Conspiracy.)
In recent years, the average gold and silver price spread has been about 60 to 1. If silver where to catch up with the GSR that has been around for the last five thousand years, silver prices today should be nearing $80/oz. Of course, this isn't going to happen anytime soon. However, silver is now trading even better than gold. Shorts and sell-offs are increasingly shallow and silver is now managing to close higher when gold has been lower.
That's because silver is not just a safe haven play. Unlike gold, which goes up during times of great political, economic, and social strife, silver is also an industrial metal that can climb with a growing economy - not to mention the possibility of price manipulation (see The Silver Conspiracy.)
The Debt Debacle
We already know that US and worldwide government debts are climbing. This should mean an increase in the price of both gold and silver. But that's where silver has its advantage. As economies around the world recover and grow in the next year, demand for industrial use silver will, too. This means when market environments appear safer, silver will continue to climb - but gold may fall (see The Human Metal.)
The Double-Edged Metal
Silver is one of the most-versatile metals, with new silver patents exceeding those for any other metal, leading to new industrial uses every year, and ever-increasing demand. Even the monitor of your computer screen or that new HD flatscreen you were just watching, has a few ounces of silver in them.
Meanwhile this same industrial demand is strengthened by the biggest surge in investor demand for silver in several decades (see the Tip of the Iceberg.)
The trace-uses of silver result in vast quantities of silver being "consumed" every year, permanently reducing the amount of available silver in the world - unlike gold, where all quantities ever mined are available or recoverable (see Tip of the Iceberg.)
It`s obvious the silver metal price appears to be moving to new highs this fall. But direct investments into the precious metal itself may not be the best choice when it comes to overall returns. There are many ways to invest in silver (see The One Exception), but by far our most favoured silver investment opportunities are in the junior markets.
The Junior Leverage
The ability for the junior miners to leverage the gains of the underlying precious metals are astounding - especially for those who may be on the verge of a big discovery or resource, or for those who are nearing production.
A look back at some of our featured silver companies this year has already proven our theory.
Our first featured silver company, Silvermex Resources (TSX-V: SMR), gave our readers the opportunity for over a 90% return in a few short months. They have recently broken a recent sell-off pattern and appears to be bouncing back strongly with momentum on its side.
But a look at one of our strongest featured silver companies, will show you the power of leverage in the silver juniors.
Minco Silver (TSX: MSV) (OTCPK: MISVF)
This past week, Minco Silver (TSX: MSV) hit yet another new 52-week high of $3.94. Take a look at their chart since our initial Special Edition Report (see the Brink of Milestone):
Not only has Minco Silver (TSX: MSV) hit new highs, their target prices from analysts are constantly being raised. In our initial report (see the Brink of Milestone), Raymond James had a target price of $3.35. But over the summer, with the rise in both silver prices and events at Minco Silver, they have once again revised their estimates with an Outperform price of $4.40. Minco Silver (TSX: MSV) currently trades at $3.82.
One of the major events that recently took place at Minco Silver (TSX: MSV) was their recent announcement of securing approximately US$44.17 million in debt financing from the Industrial and Commercial Bank of China for the construction of their Fuwan project (see news release here.) This recent announcement has led to yet another strong increase in share price for Minco Silver, as the market reacted with confidence that dilution remains minimal, even for a project of their size.
Take a look at what Raymond James had to say regarding Minco Silver in a recent report published on September 9, 2010:
We continue to maintain the view that development companies are typically rewarded in the market as they de-risk their projects. We expect the Environmental Impact Assessment to be approved over the next couple of months, which should be followed by receipt of a Mining License.
We continue to recommend investors buy shares ahead of these key announcements - we are maintaining our OUTPERFORM rating and C$4.40 target price." - Brad Humphrey, Raymond James
With the rise in both gold and silver prices, we may now be looking at the beginning of a renewed junior market sector. Funds are slowly beginning to flow back into the junior mining segments, which means that we may see a strong breakout over the next year for junior miners and explorers.
That is why we continue to maintain our position in these markets and will be continually evaluating other investment opportunities in the junior precious metals sector. Be sure to stay tuned.
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