Take Heart, Silver Bugs — It's a Great Time to Buy

Take Heart, Silver Bugs — It's a Great Time to Buy

It's a tough time to be a silver bug.

At close of day today the white metal was sitting at $17.74 per ounce, and according to iNVEZZ.com it fell as low as $17.30 earlier in the day — that's its worst price since June 2010. Meanwhile, COMEX silver for December delivery was down 0.4 percent this morning, sitting at $17.325.

Those startling prices were precipitated by a steep silver price drop on Friday, and thus far it seems as though a number of factors are responsible for the metal's ill fortune. Those include a high US dollar, "the possibility of a sooner-than-expected US rate hike" and the fact that investors are reducing their long positions in silver, iNVEZZ.com states.

Elaborating, Bloomberg's Joe Deaux said in a video interview today, "this is all about the Federal Reserve. The moment that we had the Fed projections come out on Wednesday and they suggested that [the Fed] might be raising rates a little bit earlier than the market expected ... we saw [silver] really take a hit."

Buying opportunity?

There's no sugarcoating the fact that the above numbers look bad. However, Todd Horwitz, author and founder at Average Joe Options, believes silver's drop is good news for investors. In the same Bloomberg interview, he states, "[silver is] in a major, major key spot here. It's got really solid support around this $16, $17 level, and this is where we actually broke out when we went up to $50 an ounce."

Like Deaux, he emphasized that the white metal's movement is "tied to the Fed, it is tied to the stronger US dollar. Those are the things that are driving it down." That said, "at some point those things are going to change." And, he said, if they change quickly, "silver's got a chance to go to $20, maybe $25, which could be a very, very big, positive trade." His advice to investors is thus to buy at the current $17.50 level.

Summing up that position, Bloomberg's Olivia Sterns said that as silver trades in contracts of $5,000, Horwitz would make $37,500 if the metal does ultimately behave as he expects, jumping from $17.50 to $25 — certainly nothing to sneeze at.

What about companies?

Of course, not all investors are interested in buying silver itself. And while it can be difficult to identify which companies are set to prosper given today's low prices, there are certainly some options.

Silver Wheaton (TSX: SLW,NYSE:SLW), the world's largest precious metals streaming company, is perhaps the most oft-cited example of a successful silver company, and it's easy to see why. As a recent article by Seeking Alpha contributor Joseph Harry states, the company has a slew of positive factors going for it, including the fact that it "tends to outperform physical silver historically" and provides investors with "minor exposure to gold."

It doesn't hurt that Randy Smallwood, the company's CEO, recently went on the record to say that today's poor price environment isn't a problem for streaming companies. "In having to deal with cost inflation and price deflation, it is tough to be a mining producer right now, but streaming companies still maintain very healthy margins," he said.

Similarly, Jorge Ganoza, president and CEO of Fortuna Silver Mines (TSX:FVI,NYSE:FSM), said last week that silver's current low price won't be a problem for his company. "We're quite confident our mines are resilient to lower silver prices," he said, adding, "San Jose is a mine that can operate below $10. Our cash costs at that mine are $4."

That's not to say those are the only options. Responding to Harry's article, another Seeking Alpha contributor, SomaBull, suggests that First Majestic Silver (TSX:FR,NYSE:AG) and Endeavour Silver (TSX:EDR,NYSE:EXK) are also good choices. That's because like Silver Wheaton, "they are growing their production at a very rapid pace." Expanding on that statement, SomaBull states that the two companies "have had a tremendous amount of production growth (200%-300%) to overcome ... costs increases" and as a result "have been able to perform even better than Silver Wheaton."

The upshot

All that is to say that while silver may be down, it's certainly not out. And for investors still willing to take a chance on the metal, now may be the time to jump in.

 

Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.

Related reading:

ETPs a Bright Spot in the Silver Space

Take Heart, Silver Bugs — It's a Great Time to Buy from Silver Investing News

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