David Zeiler: With silver looking even more alluring than gold lately, it’s smart to consider investing in silver miners – and a new ETF gives investors one more option.
The PureFunds ISE Junior Silver ETF (NYSEARCA:SILJ), launched in November, differs from other silver mining ETFs in that it focuses only on junior silver miners.
The PureFunds Junior Silver ETF joins just two other silver mining ETFs, the Global X Silver Miners ETF (NYSEARCA:SIL) and the iShares MSCI Global Silver Miners ETF (NYSEARCA:SLVP).
While silver mining ETFs, like silver mining stocks and gold mining stocks, have not tracked the rise in price of the precious metals themselves – many are down anywhere from 10%-20% year to date – the tide is ready to turn.
Many signs point to increasing silver demand in the months ahead, and in recent weeks more money has started to shift out of gold and into silver. Investing in silver mining ETFs is one way to get out in front of this trend before the rest of the crowd.
“For 2013, I think silver, like gold, will set a new all-time nominal price record, likely reaching as high as $54 an ounce,” Money Morning Global Resources Specialist Peter Krauth said in his 2013 silver price forecast.
Why Silver Prices Will Rise and Boost Silver Miners
Silver prices have languished so far in 2013, meandering from about $32 to about $28.50 currently.
But some technical analysts say silver prices have just about bottomed out and are poised for a big rally.
That’s being foreshadowed in a trend of increased buying of physical silver in recent months by silver-backed ETFs like the iShares Silver Trust ETF (NYSEARCA:SLV). There’s also been unusually strong demand for Silver Eagle coins from the U.S. Mint this year.
What’s more is this latest projection that’s bullish for silver prices: Industrial demand for silver is expected to rise 7% this year and another 6% next year.
“People have been buying silver both as a base and precious metal,” Rohit Savant, a senior commodity analyst at the New York-based research company CPM Group , told Bloomberg News. “Economic demand will push prices higher.”
When silver prices do start to make their climb, expect silver miners to go along for the ride.
Investing in Silver Miners, Junior Style
Because it’s concentrated on small-cap junior silver miners, the PureFunds Junior Silver ETF is prone to be more of a high-risk, high-reward play on silver.
According to PureFunds, the Junior Silver ETF “seeks to replicate as closely as possible …
the price and yield performance of the ISE Junior Silver (Small Cap Miners/Explorers) Index” by tracking “public, small-cap companies that are active in the silver mining exploration and production industry.”
Junior miners tend to focus more on exploration than their larger brethren, which is why they tend to be a lot more volatile, prone to giant price swings. Individually, they can make you rich or take you to the cleaners.
“Junior mining stocks are not for the faint of heart,” Krauth warned.
But using an ETF as a tool for investing in silver miners does help mitigate the risk.
Here are the top 10 silver mining stocks in the PureFunds Junior Silver ETF:
- MAG Silver Corp. (NYSE: MVG): 7.79% of portfolio
- Fortuna Silver Mines Inc. (NYSE: FSM): 6.98% of portfolio
- G-Resources Group Ltd. (HKG:1051): 6.38% of portfolio
- Mandalay Resources Corp. (TSE: MND): 5.99% of portfolio
- Endeavour Silver Corp. (NYSE: EXK): 5.73% of portfolio
- Orko Silver Corp. (PINK: OKOFF): 5.68% of portfolio
- Aurcana Corp. (PINK: AUNFF): 5.60% of portfolio
- Gabriel Resources (PINK: GBRRF): 5.42% of portfolio
- Silvercorp Metals Inc. (NYSE: SVM): 5.37% of portfolio
- Bear Creek Mining Corp. (PINK: BCEKF): 4.65% of portfolio
“There are few other industries where $1 spent drilling in the right place can return $100 dollars to early investors,” Krauth said. “Junior miners offer that explosive potential.”
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