I am not a chartist. Charts can be an important tool as a supplement to more fundamental research activities. But for me, it goes too far to explain fluctuations in the markets just on the patterns of the charts. Even more so when it comes to anticipate and predict possible future moves of a commodity or a share. But it is worthwhile to have a look at the charts every now and then because sometimes the eye sees something that the mind did not notice yet.
Like this weekend when I was thinking about what I would write about in this Editorial. My eyes were drawn to the charts above. In particular, I noticed the similarities in the charts of SILVER and PALLADIUM, on their own individual recent price patterns and in comparison to their “big brothers” GOLD and PLATINUM. Whereas gold and platinum had to experience downward pressures again in the last week, it seemed that silver and palladium did not blindly follow and instead, seemed to go their own way, each showing their intention to go up. I found this a remarkable discrepancy and similarity at the same time.
Although I follow platinum and palladium as close as I do follow gold and silver, I don’t have much to say/write about platinum and palladium at this time. Just for the simple reason that there are not many resource companies active in those nevertheless fascinating and very precious metals. With silver that is quite different. Silver is still a very much in demand metal, although you may question how it still is a real precious metal or that it has become a significant industrial metal. In my view, silver is still a precious metal because the demand has continued to be strong and the supply is almost entirely been taken up by its primary users.
I do find silver companies, with the emphasis on those that are producing, highly interesting. Over the last 10 years, we have seen several companies develop into quite sizeable producers, not seldom expanding from one-mine operations to full-fledged operators of several mines at the same time. A trend that is likely to continue since the current markets are very suitable terrains for shopping, or in proper business language M&A. Why is that? Just because while the production figures of most silver producers look like those of growth companies and successful operators, the picture looks very much different when you take their net profit margins as indicator for success. The costs of mining and exploration have been rising quite steeply over the last 10 years too. The price of silver should increase at least another $1 to $5 to turn the larger silver producers into comfortable profit producers. Will that be possible? I think it is, in particular when the gold price would return to nicer levels than today’s prices. The pattern of the silver price over the last week sure is a very encouraging sign because it also suggests that silver can have a will of its own. Interesting!!!!
In the last few months, I have been talking to several good quality silver producing companies. They all radiate confidence and I think for the good reasons. I am outright very positive about the quality of most managements, they have been building their companies with solid dedication, based on the insights they have in the markets. In many cases, I have known those managements for many years, seeing them develop themselves in their abilities and their companies from one-project exploration companies to multi-mine operators. I am following a group of them with special interest since I believe they are the ones to benefit from the better circumstances (read: better prices) in the gold and silver markets. With every upward move of the silver price, they come closer to making very substantial and welcome profits. And isn’t that what resource investors like to see? I do feel confident that I will be able to share some of my views on those companies in the near future!