For the past two years, investing in silver miners has been much less profitable than owning the white metal itself. But that's changing - and fast. That means these three mining stocks are "on sale."
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That means you should consider investing in silver now before it goes even higher.
In case you haven't noticed, after wallowing around in the mid-20s for months, silver prices have shot back over $30 an ounce.
And thanks to wildly bullish technical and fundamental indicators, silver could soon retest its 2011 high, or even blow through it.
If that happens, silver's run-up will hand investors a fortune, so here's how you can cash in.
Turnaround in Silver/Gold RatioHistorically, the price of silver per ounce has usually been equal to around 1/16th of an ounce of gold,meaning it took 16 ounces of silver to equal the value of a single ounce of gold.
But over the past decade, gold has taken off, trading as high as 60-70 times the price of silver.
That is, until last year. As silver prices rose to nearly $50 an ounce, the ratio fell to 30-1.
But as prices for the white metal settled near $27, the ratio has skyrocketed back up.
Right now, you get 55 times more silver for your money than gold.
But it would still have to triple in price to even sniff where it should be in relation to gold.
And there are signs that this is just what's going to happen.
Strong Signals for Silver Price RallyFrom a technical viewpoint, the rally in silver may be just beginning.
You see, the silver futures markets are in what's known as "backwardization."
Like gold, investing in silver is a great hedge against inflation and financial turmoil alike. It's why demand for silver is increasing at an astonishing rate.
In fact, says Money Morning Global Investing Strategist Martin Hutchinson, "If silver were to match its 1980 peak, adjusted for inflation, it could climb as high as $150 an ounce."
For savvy investors who hold physical silver in bars or coins, that move would deliver roughly a 328% gain from today's spot-prices.
Investing in Silver CoinsOf the two, buying silver coins is a bit more challenging because there are so many different ways to purchase them - including rare coins.
But while rare collectible silver coins are often attractive and sometimes bring in big prices when sold, their value is quite subjective, as they are tied to a number of largely intangible factors like scarcity, wear and quality of appearance.
Rather than becoming a rare coin collector, most investors would be better off purchasing bullion coins if their intent is to ride the silver bull market.
Sprott believes in silver and gold as money, and he has little faith in paper currencies.
That explains his recent acquisition of a chain of currency exchange outlets, which he aims to gradually build into the safest kind of bank - one that makes no loans, and could eventually offer gold- and silver-backed checking accounts.
Leave it to Sprott to flip a long established business model on its head.
And now he's at it again.
Ever the investing activist, Sprott's latest move involves a "call to action" for silver producers, challenging a business practice typical of most - saving in cash.
Sprott has sent a letter to silver producers, suggesting that they reinvest some 25% of their earnings back into silver, rather than in cash at the bank.
On the surface, it doesn't look like such a dramatic step.
But after deeper analysis, it's clear such a move will accomplish two significant things for shareholders:
- It will heighten exposure to a commodity that the investor initially bought those shares for.
- And it will protect the investor from the risk of devaluing currencies the company would have held instead.
And as I keep digging, I realize that the implications go well beyond these two shareholder advantages.