Analysts debate the future of silver stocks making a tentative comeback


Silver once made a dollar. Now it looks more like a penny stock.

In February, silver's price on commodity markets fell below $3.50 an ounce, completing a 40 percent drop in a year. Through a decade-long slide for silver, both cynics and supporters have repeatedly question what the bottom would be for what once was a staple of many portfolios.

A brief rally brought silver off 17-year lows to $4.45 an ounce last week. The move has kindled a discussion about whether silver finally looks attractive as an investment at such "cheap" prices.

"The silver bulls may say that this is the beginning of a new bull market for silver. I just don't think that's true," said Victor Flores, who runs two natural-resource mutual funds for United Services Funds in San Antonio, Texas.

Silver has been one of the moredepressing investments in recent times. It reached its freak record peak of $50 an ounce in January 1980 after the Hunt brothers of Texas attempted to corner the market. Since then silver's price has been a steady downer.

The key culprit is oversupply. Silver is often produced as a byproduct of mining other metals. This produces silver whether prices are high or low, dampening its allure to investors.

Silver also lacks the "monetary" value that gold holds. Silver coins were once a major part of the U.S. currency, but silver dollars were dropped by the government in 1965.

As a result, early this year silver slipped to depths not seen since the 1973-1974 recession. Those prices where well below the cost of producing silver and a major reason some silver mines closed.

George Hallock, a coin dealer in Anaheim, Calif., said that the recent bottom for silver prices created moresellers than buyers. "You wouldn't believe how many people sold when it slipped under $4," Mr. Hallock said. He's yet to see much interest now that prices are rebounding. "It usually takes the public a month or so to catch on."

The bad news might create a buying opportunity, some analysts say. Already there are signs that silver's fundamentals are reversing slowly. Industry figures show that demand is running equal to silver supply for the first time in years.

Another positive could be the possible end of the recession. Since the major buyers of silver are industrial users, any rebound in business activity could help prices.

BAdditionally, silver -- like other metals -- is considered by some analysts to be a hedge against inflation. Some experts fear if the economic recovery comes too fast, sharply rising prices will soon follow. That could help silver's fortunes.

David Tripple, who runs a metals fund for Pioneer Funds in Boston, says he could see silver rising to $6 to $8 an ounce in

the long run. He advises investors to accumulate silver slowly and be ready to hold it for up to 10 years to make a handsome profit.

"It can't get much lower from here," he said. "But it's not headed back to $50 an ounce, either. That price had nothing to do with reality."

Silver's major use is in photograph processing. There are many technologies in the works that could drastically reduce that use -- although none appear ready for the marketplace in the near future.

Also, several large producers of silver, such as Peru, need the cash generated from silver sales. They tend to run their state-owned mines regardless of its price.

Another problem is that the speculators' market for silver is not as large as gold's, leaving silver's price vulnerable to sharp swings.

In 1987 -- the last time silver crossed $10 an ounce -- a brief rally was driven by fears that Peruvian mines would close. Silver reversed course sharply after Peru assured the world that supply would not be interrupted.

These factors, as well as its dismal performance record, have pushed silver out of many investors' minds completely.

Several mutual funds that ownprecious metals and mining companies have little or no money tied up in silver. The only exposure they have to silver is in companies that produce numerous metals.

Those thinking about playing a metal-price move often look to mining stocks. These shares offer both speculation on the commodity along with the stability of owning a piece of an operating business. But there are only two major U.S. silver-mining stocks, Coeur d'Alene Mines and Hecla Mining, which have interests in silver mines in Nevada and Idaho. Few analysts are aggressively recommending these shares.

Otherwise, investors are limited to either owning silver directly through coins or bars or dramatically raising the risks by buying options or futures. These contracts to buy silver in the future can lose -- or earn -- investors big money quickly. They are recommended only to savers who can afford to risk their entire investment.

Copyright © 2019, The Baltimore Sun, a Baltimore Sun Media Group publication | Place an Ad