Saturday, January 26, 2008

Silver Stocks

To buy silver stocks, as distinct to actually buy silver bullion is precarious and subject to many other factors than just the price of silver.

Silver mines produce around 650 million ounces of silver a year. Plus about 200 million ounces from scrap recycling, and 100 million ounces from investor selling, or government selling. That's a total of around 950 million ounces a year.

Of all that silver just over 40 percent is used by industry, 28 percent in jewelry, an additional 20 percent in photography and around 5 percent in coins and medallion. That comes to 95 percent of the total silver available.

So there is an apparent 5 percent available for investment but, as investment is starting to increase this percentage is diminishing rapidly.

Silver consumption has been increasing since the 1950s and an increasing percentage is 'lost' in consumption each year due to deterioration, destruction and hoarding.

It has been estimated that there is only around 200-300 million ounces of silver available to the market at the present time and about 125 million ounces of silver at the NYMEX, the big commodity exchange in New York.

Silver Stocks & Shares
Stocks and shares are not silver but an investment into a company that either mines or explores for silver for future mining. Few companies actually mine silver as a stand along product as silver is usually found along side or with other minerals such as tin, copper, lead or zinc. Companies will mine whatever minerals they find and process to extract all the minerals available.

So, in fact, one is rarely investing in a silver mining or exploration company per sec. Shares are, then are a base metal investment, not really a silver investment.

This puts a completely different picture on the investment as the value of the shares and not related directly to the production of silver but to other factors, which may be the production of other metals, the success of the exploration as well as the cost of production per ounce to extract the silver.

In addition there are usually internal company influences, such as management policies and decisions, external influences such as company competition, economic and market forces

To spread their risk, then, some silver investors prefer to spread their risk by investing in precious metal mutual funds rather than one individual company.

Silver Mining Companies
If you find a silver mining company that mines principally silver in which you want to invest, the most important points to consider are, how much silver does the company have in the ground and how much does it cost to extract and refine it.

Finding out how much silver he company has title to and owns in the ground and then dividing the market capitalization of the company by those ounces will tell you if it is sufficient to warrant an investment.

In this way you will find out the cost per ounce of production and then how much you are paying for what you get.

Some CEOs will try and convince their investors that their ounces are better than the next mans. This is not about the quality of the refined silver. That is the same company to company. What it means is that they are saying that the cost to produce their silver is less and therefore their profits are going to be greater and the dividends to shareholders will be bigger.

So remember the two important questions, when considering an investment in a company are: How many ounces do they have? And How much does it cost to produce those ounces.

It's very simple. Cost per ounce in the ground. How much do you get, and how much does it cost?

Silver Stocks or Silver Bullion
Investors want to invest in as close to a certain and secure investment as possible. With silver companies, such as minding and exploration, there can be fantastic gains to be made, but the risk is very high and the number of variables make it a precarious investment compared to having silver in your hot little hand.

Owning one kilo of silver in storage is worth one kilo of silver regardless of the price. Owning one kilo of silver represented by an investment in a mining company can be wildly different, particularly if the company has other issues that affect the share price and regardless of the actual value of the silver.

Historically the price ratio between silver and gold was always around 10 ounces of silver to one ounce of gold. Recently however the ratio has increase with over 50 ounces of silver to one ounce of gold. Even though the trend of both metals as remained the same the gap between then has widened.

Silver is grossly undervalued right now and there is a lot of room for decreasing the gap between silver and gold. When it comes to silver stocks, an ounce in the hand is certainly better than two ounces in the bush.

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