SILVER SHARES SURGING AHEAD!
On November 30,
with silver at $ 5.34, we wrote: "The resistance level of $ 5 has since been left behind and while the silver price pushes higher through the $ 5 to 6 area, the bases is laid for much higher valuation in the not too distant future.."
December has indeed been a spectacular month for the silver price as it pushed right through the
resistance area between $ 5 and $ 6 $ and closed the year at a level not seen since 1999.
While a short-term minded speculator may not be able to resist the temptation to take profit at this
level as a consolidation becomes more likely, a long-term investor should simply sit through any
correction, knowing that the silver price will eventually move much higher once it clears decisively the 6 dollar hurdle.
The long-term picture of the silver price
Looking at the chart below, one thing becomes evident, namely that the silver price is at a major
resistance dating back to 1989 when it fell below the level of $ 6 after hitting a high at almost $ 10.
In 1998, the silver price hit briefly almost 8 dollars when it became known that Warren Buffett had
bought silver. This spike, caused probably also by short-covering, should, from a technical point of view, not have too much technical significance.
It may take some time before the silver price clears this hurdle for good. Nevertheless, we think that there may still be substantial short positions to be covered. When this happens, the silver price could quickly move considerably higher before a more substantial consolidation has to materialize.
The prices of silver shares in some cases reach new all-time highs
Below, we present the charts of our favorite silver companies.
Pan American Silver Corp (TSX:PAA)
"The massive turn-around seems to be drawing to conclusion. Resistance around $ 14.00 has to be overcome, but once it is achieved, the share price will likely move higher quickly as selling dries up.", we repeated on November 30.
In the meantime, the resistance around $ 14 has indeed been overcome and we expect further price advances once the silver price takes off. What we said before is still true.
Coeur d'Alene Mines (NYSE :CDE)
Short-term, the share price may have moved too quickly and needs consolidating the recent
advances. Long-term, prices of $ 15 and more should be possible as the all-time high of $ 35 in 1987 is still a long way off.
Western Silver Corp (TSX:WTC)
"The share price of Western Silver started its up-trend channel at the beginning of 2002. The up-trend is will established and, after having surged above the resistance area at $ 4.50, should lead the share-price higher over coming months.", we wrote on November 30 and it is still valid.
Silver Standard Resources (TSXV:SSO)
"While we cannot exclude a reaction down to the $ 10 level, should the silver price fall back to areas of less than $ 5, we would rather stick to our guns in view of the fact that the silver price will likely move substantially higher over coming months and years.", we wrote on November 30.
The share price of course looks overextended in the short-term. A short-term minded speculator may well wish to cash in some profits.
Apex Silver Mines (Amex :SIL)
This may be the beginning of a major move.
Hecla Mining Company (NYSE:HL)
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While we expect consolidations on a smaller scale like the once we have seen before, we see higher prices during the months and years to come and the patient investors will be well rewarded.
In spite of the strong advances of the prices of silver shares during the past weeks, we are
confident that more is to come as soon as the silver price starts moving up again helped by outstandingly strong fundamentals.
Fundamental Considerations: THE RISING SILVER DEMAND
Demand for silver includes industrial applications, photography, jewelry & silverware. Together, these three categories represent more than 95 percent of annual silver consumption. In 2000, 378 million ounces of silver were used for industrial applications, while over 230 million ounces of silver were committed to the photographic sector, and 281 million ounces were consumed in the jewelry and silverware markets.
Silver is in demand because it has a number of unique properties including its strength,
malleability and ductility, its electrical and thermal conductivity, its sensitivity to and high
reflectance of light and the ability to endure extreme temperature ranges. Silver's unique
properties restrict its substitution in most applications. Choose from the following list to learn more
about some of the various applications of silver:
Electrical and Electronics
Silver is the best electrical conductor of all metals and is hence used in many electrical
applications, particularly in conductors, switches, contacts and fuses. Contacts, a junction between two conductors that can be separated and through which a current can flow, account for the largest proportion of electrical demand. Silver is invaluable in the manufacture of circuit breakers and motor controls.
In electronics, silver is also widely used. Uses include silk-screened circuit paths, membrane switches, electrically heated automobile windows, and conductive adhesives. Every time a home owner turns on a microwave oven, dishwasher, clothes washer, or television set, the action activates a switch with silver contacts that completes the required electrical circuit.
Medical Applications
While silver's importance as a bactericide has been documented only since the late 1800s, its use in purification has been known throughout the ages. Early records indicate that the Phoenicians, for example, used silver vessels to keep water, wine and vinegar pure during their long voyages. In America, pioneers moving west put silver and copper coins in their water barrels to keep it clean.
In fact, "born with a silver spoon in his mouth" is not a reference to wealth, but to health. In the early 18 th century, babies who were fed with silver spoons were healthier than those fed with spoons made from other metals, and silver pacifiers found wide use in America because of their beneficial health effects.
Silver also has a variety of uses in pharmaceuticals. In fact, silver sulfadiazine is the most powerful compound for burn treatment. It is used by every hospital in North America for burn victims to kill bacteria and allow the body to naturally restore the burn area. It is used world-wide. In another application polyurethane central venus catheters are impregnated with silver sulfadiazine and chlorhexidine to eliminate catheter-related bacteria.
In a world concerned with the spreading of virus and disease, silver is increasingly being tapped for its bactericidal properties and used in treatments for conditions ranging from severe burns to
Legionnaires Disease.
Water Purification
Silver is employed as a bactericide and algaecide in an ever-increasing number of water
purification systems in hospitals, remote communities and, more recently, domestic households.
Silver ions have been used to purify drinking water and swimming pool water for generations. New research into silver compounds is providing physicians with powerful, clinically effective treatments against which bacteria cannot develop resistance.
Photography
When Joseph Nicephore Niepce created the first photographic image obtained through a camera-like device in 1813, it was silver nitrate that made it possible.
Although digital photography is increasing, silver-based photography will retain its pre-eminence due to its superior definition and low cost. An estimated 230 million troy ounces of silver were used worldwide in 2000 for photographic purpose.
William Conrad Roentgen's discovery of x-rays in 1895, led to his discovery that they activate silver halide crystals. This revolutionized medical diagnosis. Radiographic use of silver worldwide consumed 78 million troy ounces in 2000. Medical uses aside, X-ray inspection is essential to ensure the integrity of metallic castings from small truck axles to the huge aircraft-carrier steam valves used to propel airplanes from a flight deck. Of all the inspection techniques, it is the image on a silver halide x-ray film that provides the clearest indication of flaws deep within metallic components.
Batteries
The silver battery provides the higher voltages and long life required for quartz watches. In fact, over 1.4 billion silver oxide-zinc batteries are supplied to world markets yearly, including miniature sized batteries for watches, cameras, and small electronic devices and larger batteries for tools and commercial portable TV cameras.
Coins
23,851,873 ounces of silver were issued in the form of silver coins in 1995.
Bearings
Steel bearings electroplated with high purity silver have greater fatigue strength and load carrying
capacity than any other type and are hence used in various hi-tech and heavy-duty applications.
Jewelry and Silverware
Silver possesses working qualities similar to gold but enjoys greater reflectivity and can achieve the most brilliant polish of any metal. To make it durable for jewelry, however, pure silver (999 fineness) is often alloyed with small quantities of copper. In many countries, Sterling Silver (92.5% silver, 7.5% copper) is the standard for silverware and has been since the 14 th century.
The copper toughens the silver and makes it possible to use sterling silver for cutlery, bowls and other decorative items such as picture frames.
Brazing and Soldering
In 2000, 38 million ounces of silver were used for brazing and soldering in industrial and electronics applications.
Catalysts
A worldwide inventory of some 23 million ounces of silver are in daily use for catalytic
oxidation in chemical reactors, principally in the plastic industry.
Electroplating
The ease of electrodeposition of silver accounts for silver's widespread use in coating. The plating thickness of some items, such as fuse caps, is less than one micron. Coatings of two to seven microns are normal for heavy-duty electrical equipment.
Solar Energy
Silver paste is used in 90 percent of all crystalline silicon photovoltaic cells, which are the most
common type of solar cells. All silicon cells used in space to power satellites utilize silver in the form of evaporated metal to make the electrical contact.
The following recommendations were valid at the time of writing, viz. at
and may no longer be valid at the time of reading.
Peter Zihlmann
www.pzim.com
investment@pzim.com
forex@pzim.com
January 5, 2004
Disclosure: The author has not been paid to write this article, nor has he
received any other inducement to do so. The author is a shareholder in the
company and will benefit from any increase in the company's share price.
Disclaimer: The author's objective in writing this article is to invoke an
interest on the part of potential investors in this stock to the point where
they are encouraged to conduct their own further diligent research. Neither
the information, nor the opinions expressed should be construed as a
solicitation to buy or sell this stock. Investors are recommended to obtain
the advice of a qualified investment advisor before entering into any transactions
in the stock.
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