What happened
Silver and Gold Miner Shares Majestic First Silver (NYSE: AG) they were higher by an impressive 12% or so at around 1 pm EDT on July 22. The price jump followed a notable advance in the price of silver, which is conveniently included in the name of the precious metal miner. There is a long-term story here.
And that
The first thing to understand about First Majestic is that it generates approximately 60% of its income from silver, and the rest comes from gold. Silver is clearly an important metal for the company, but like most miners, it not only produces a single metal and is therefore not a pure game of silver (despite what its name may imply). A publicly traded fund (ETF) such as iShares Silver Trust, which directly owns the metal, would be a better option for specific exposure to silver. That said, silver has had an incredible career lately and First Majestic will clearly benefit.
Image source: Getty Images.
Since bottoming out in mid-March, silver, using iShares Silver Trust as a proxy, has recovered more than 75% compared to an increase of “only” 23% for gold, using SPDR Gold Shares as a proxy. It should be noted that the price of silver has risen more than 15% in the last five days. That corresponds to an equally impressive price gain for First Majestic Silver, which is over 30% over the same span. Everything is basically tied to the company’s relatively strong exposure to silver.
Now what
Silver is a notoriously volatile precious metal that is often even more turbulent than gold. The advance in the current price for the metal, and companies like First Majestic Silver mining it, is exciting, but he doesn’t see it as a reason to buy silver or silver miners. Investor sentiment could reverse course just as quickly and cause silver to drop sharply again.
For long-term investors, precious metals are likely to be viewed better as diversifying assets, with a small portion of a portfolio allocated to the space on an ongoing basis. Going in and out trying to calculate movements in silver prices could end up being a recipe for disaster. It’s worth noting that miners like First Majestic Silver stocks often move much more drastically than precious metals, which would accentuate the downside as much as it has on the upside.
