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Avoid Gold Miners: Invest In Silver Instead.


Precious metals mining stocks and ETFs tend to under-perform the physical metal.

However, silver miners are better than gold miners because they are better able to take advantage of economies of scale.

Streaming companies, for either metal, are the best bet for a precious metals recovery.

Securities in Question:

Investors can invest in silver production via the Global X Silver Miners ETF (NYSEARCA:SIL) or (NYSEARCA:SILJ) for junior miners, and the MSCI Global Silver Miners (NYSEARCA:SLVP).

There are also silver streaming companies, such has the well known Silver Wheaton (NYSE:SLW), and pure silver plays like Pan American Silver (NASDAQ:PAAS) and First Majestic (NYSE:AG) - the latter of which is the purest silver play available with 69% of revenue coming from production of the metal.

Unlike with gold mining stocks, investments that usually underperform the physical mental, it is not unusual for silver mining stocks and ETFs outperform both gold miners and physical silver over the long term.

Silver is a Commodity:

The vast majority of silver is used for direct industrial applications, only a small fraction is used for investment. And silver is not commonly held as a monetary asset in central banks.

The metal closely follows the commodity cycle along with other materials like copper, oil and zinc. As with these other commodities, the value of silver is derived from supply and demand. Speculative forces like inflation or hedging against a weakening dollar do not affect the silver price as much as they affect the gold price.

I believe investing in a silver producer is more similar (economically speaking) to investing in an oil or base metal producer. And this is a good thing for the investment.

The Economics of Silver Mining:

Silver is a commodity first and a precious metal second. The economics of silver production are completely different from the economics of gold production.

First off, there is a lot of silver in the world. Over 800...