Silver Mining Stocks

One way to gain exposure to silver is by purchasing shares in companies that mine silver. There are many companies listed on the stock exchange that fit the bill. Bloomberg has a pretty comprehensive list to choose from here

Correlated With the Silver Spot Price

Silver mining company stocks correlate fairly closely to the spot price of silver. As the spot price elevates the value of the “mining activity” rises in parallel. Those with stock trading accounts can immediately gain exposure to silver by choosing these stocks as part of their portfolio.

Although stocks are closely correlated to the silver spot price, they do not behave in exactly the same way. Mining companies are subject to a number of forces that may not be reflected in the overall spot price. Weather situations, distribution and logistics, manpower and even political unrest can play their role in company performance. A stock may suffer despite silver prices more generally doing very well.

In addition, spot price reductions in silver may hit company stock prices by a higher percentage than a spot price fall. Companies have fixed overheads for their operation. They have costs per ounce of silver that they mine. If it costs a company $10 per ounce of silver mined, and they earn $30 per ounce before costs, then a fall in price of silver to $25 will mean a 16% drop in spot price, but a 25% drop in company profits.

The more geographically diversified the mining activities of a company, and the bigger the organizational structure, the more likely the stock is to be closely correlated with the spot price of silver and be safe from operational fluctuations.

Advantages of Trading Silver Mining Stocks

Trading silver company stocks allows you to invest in silver with relatively low transaction costs. It is of course not a direct investment in physical silver, so there are no storage or maintenance requirements.

Disadvantages of Trading Silver Mining Stocks

The flip side is that with this investment medium you do not physically hold any silver, and so are at the mercy of the markets. Factors totally outside of the overall realm of silver performance may also hammer your investment; especially if the company has problems.

Choosing Silver Mining Companies

Choosing a silver mining stock will require a real understanding of the relative merits of different companies. It may be necessary to understand annual statements, the make-up of the board, the geographical areas mined and a lot more. It can be a complex process and may require input from an investment adviser.

If you are just looking to add silver exposure to your investment portfolio then investing in several quality mining companies can provide a way to enhance your portfolio, while spreading the risk more than choosing just one mining stock. If you already use an investment platform that gives you access to these stocks it is very simple to get going.

Remember that a key benefit of physically holding silver, as a hedge against the markets, is all but lost by investing this way.