Catching up with 'the small silvers' comparative

Last year we ran a series of posts that compared nine small silver miners and the benchmark silver ETF (SLV) to see how they did on a peer basis. As the final chart showed, Endeavour Silver (EDR.to) took the prize as the year's best performer.

So with a-month-and-a-bit gone, let's see how those same companies are faring in 2010. Here's the chart.......

click to enlarge

....and it's sorry sight at the moment, with none of them allowed to be 'best' and the most we can say is really 'least worst'. First place at the moment goes to Fortuna Silver, having dropped by about 4% so far this year. Second spot is taken by Bear Creek (BCM.v) and third goes to US Silver (USA.v). These are the only three above our benchmark of silver the metal as tracked by SLV.

Bottom? ECU Silver (ECU.to) as usual. The worst dog-of-dogs in 2009 is maintaining is mediocrity into 2010. Still holding, GATAfoolz?

UPDATE: I put this chart up around lunchtime and then left the office. Back after the bell and I see the whole silver sector has rallied into the bell. This is a good thing, but does make the far right of the chart above somewhat redundant. Such is life and i'll take the rally over an accurate chart anytime.

Silver juniors, a year-to-date chart

Some guy mailed me the other day with a chart showing the recent performance of the total dog and retail scamtrap ECU Silver (ECU.to) versus smart, well run Fortuna (FVI.v) with a kind of "ahahaaa you're wrong, sucker" note attached. Well yeah, in the last couple of weeks ECU.to has popped while FVI.v has seen my trade rise "only" 20% or so (can't you feel my heart breaking?), but maybe seeing a range of peer junior silver stocks and how they've performed in 2009 is a better gauge of the companies in question.

Click to enlarge

EDR.to and GPR.to have both popped the hardest. After all these companies have enjoyed the leverage of high cash costs relative to the improved spot prices for silver (just a fancy way of saying that even these dogs can make a profit with $15/oz Ag). Then comes FVI.v, then MAG.to and FR.to level pegging.

And what's that one at the bottom? Oh yeah, it's ECU.to. Woof woof.

Hochschild (HOC.L) downgraded by UBS after a great run

Interesting analysis call out of London this morning. UBS has cut its rating on Hochschild (HOC.L) from 'buy' to 'neutral'. HOC.L is 7.1% down right now at 232p. The stock peaked two days ago at 278p intraday, which is quite the blowoff top, is it not? Checking the chart.....

.....it seems like UBS nailed that call and has had a great run so maybe they see no more rebound left in HOC.L, one of the world's largest dedicated silver miners. There's certainly no nitpicking possible at the original UBS call last year and its clients that took the sellside advice must be very happy with their advisors now.

Keep it clear that guys like UBS don't mess around with the little equities that I tend to feature here (like FVI.v, for example). The big boys swim in big pools, which means that in the case of dedicated silver plays choices are rather limited. Apart from HOC.L there's FRES.L, PAAS, HL counts I suppose (but already we're encroaching on larger gold production in the mix) the original Peñoles company of course (from where Fresnillo was spun off), Silver Wheaton (SLW) and then SLV the metal ETF. But then my "off top of head" list starts to get thin. Maybe you can add a couple more, but there aren't many out there, that's for sure.

So with UBS downgrading HOC.L today, it's sending more than a simple message about a single stock, methinks. My best interpretation is one of UBS saying "party's over for a while...time for a bit of consolidation after the nice rebound." But that's just my dos centavos.

Silver is a base metal

That's what this chart is saying.

I find this chart enlightening on several levels and an excellent roadmap for trading the near future. Using GLD as a proxy for gold and SLV as a proxy for silver, we can clearly see that silver performed as a classic precious metal asset class for a long time. Then with the onset of crisis that notion was blown away, silver immediately stopped tracking gold and dropped with the industrial indices (I'm using the Dow as proxy, as it's not called the Dow Jones Industrial Average for nothing).

The crossover drop happened just before the big swoon in the broad markets at the end of September 2008. Was silver the canary in the coalmine? I don't know about that one, but 20/20 hindsight makes it an intruiging thought.

It also explains, without recourse to silverbug paranoia and all that tosh about the PTB manipulating every given moment of our financial life, just why silver dropped as hard as it did when it did. Put simply, the market has rejected the notion that silver is an asset class...for the time being, at least. I more than suspect that silver's behaviour has a lot to do with this previously published chart that demonstrates the big rise in modern silver production.

This in turn is due to the fact that a large portion of modern-day world silver production is as a by-product of other metals, notably zinc and lead (and no doubts that they're base metals).

So what does this tell us? In my view it tells us that we can throw out the gold:silver ratio for the time being, as silver and the miners that produce silver will perform as a direct function of the broad economy. Or in other words, silver is operating as a classic commodity. Stick the Ag price up on the kitco basemetals page and strike it from the main website page as of this moment.

Also, taken with the chart above that shows SLV compared to a cross-section basket of silver miners (PAAS, SSRI, FVI.v, FN.to and GPR.to), it's clear that the silver miners offer significant leverage to the metal going forward (having been punished more severely from late September onwards).

Bottom line: Rules to trade silver as of today:

1) Watch the dow and forget about the price of gold. Silver is not tracking gold, it is tracking the broad markets. Silverbugs won't like the idea of that, but since when have they been right about the market anyway?

2) If you feel there is significant upside in silver the metal, trade the silver stocks. They will give you more bang per buck, at least for the time being.

The final question to be asked is; "What would make silver 'cross back', leave the industrials behind and allow it to start tracking gold again?" That's something that is worth thinking about for the medium term, but I really feel we have enough on our plates trying to survive on a week-to-week basis for the time being. Any suggestions for an answer to this part of the riddle gratefully received.

DYODD, dude

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A couple of interesting* charts on silver