Investors who are familiar with the equity market can, as an convenient alternative, access the silver market by buying stocks of silver mining companies. However, companies rarely mine silver alone and often, other base metals such as lead, tin, copper or zinc are often produced alongside. Hence, while the price of silver stocks generally correlates with the price of silver, the degree of correlation depends on the proportion of silver mined relative to the other metals. Furthermore, severe negative price action on the other metals may dampen the positive effect of any rise in the price of silver. Therefore, if you plan to invest in a silver mining company, it is very necessary to keep an eye on the price of the other metals being produced, in addition to the price of silver.
Another important detail to take note of when investing in silver mining stocks is how much of the company's future production has been hedged. A silver producer with a substantial proportion of future silver production hedged will not benefit as much as an unhedged producer if silver price rises signifcantly. Conversely, should the price of silver plummets sharply, the unhedged producer will suffer a greater drop in earnings (and possibly even losses) when compared to the company whose production is substantially hedged. While unhedged silver stocks offers greater leverage, hedged silver producers offers more stability.
Other factors that impact the silver stock's price include such things as the company's operating strengths, future growth prospects and management's competence. The price of silver stocks can also suffer due to events such as strikes by the mine workers or mining accidents.
Besides capital gains, ownership of silver mining stocks also let the investor earn a dividend. In the long run, the dividend will also rise along with the price of silver.
Major Silver Mining Companies
- Silver Wheaton Corp.
- Silver Standard Resources Inc.
- Pan American Silver Corp.
- Apex Silver Mines Ltd.
- Hecla Mining Co.
How to Start Trading Silver Mining Stocks
To buy or sell silver mining stocks, you need to open a trading account with an online stock brokerage such as TD Ameritrade. We recommend TD Ameritrade as they provide a virtual trading platform where beginners can try out stock trading in real market conditions without using real money.