In recent days, the Gold Index ($HUI) closed at its highest level in over a year. The surge is a sign that we may not be embarking on a new bull market for physical precious metals.
In just a few months, miners such as Endeavor Silver Corporation ($EXK) and Barrick Gold Corporation ($ABX) have seen their share prices rise 30% and double, respectively.
Usually, such a move signals a shift in the physical precious metals market.
Mining stock prices are not exactly correlated to moves in the price of the underlying metal, but a substantial upward trend implies investors see much higher prices on bullion.
There is less risk in physical metals than mining companies, which are operating businesses which can go bankrupt, get hit lawsuits, environmental disasters, and new regulations, face ballooning energy, equipment, and labor costs, etc. Given all the hazards faced by producers, it is not surprising that gold spot prices greatly outperformed gold stocks in the last 10 years. Gold prices gained 104% in that period, while the Gold Index ($HUI) actually lost 60%.
But in a bull market, mining stocks can vastly outperform and are worthy of strong consideration for some of your investment dollars. A few major companies such as Barrick Gold are even paying out dividends.
Based on actual results in the past few decades, physical precious metals are a more reliable and less volatile way to play the market. Both the stocks and the metals appear undervalued at the moment, but there is less risk when holding the actual gold and silver.
As Seeking Alpha reported, the silver market is on the rise, but highs remain lower than last year. It reached $16/oz, which is its high for the current year. Perhaps this is a sign that confirms the bull market is here. In addition, the price of gold bullion is up 19% year to date.
With a gold:sliver price ratio currently at 79.1, a major move upward in silver prices would be a significant factor to possibly narrow the gap.
Given the major surge seen in the mining stocks, the best way to capitalize on a new bull market in precious metals could be to own physical silver. Silver is historically undervalued versus gold and tends to outperform gold during a bull market. Buckle up!