Silver: Dry Kindling Awaiting A Spark

The mining sector is an additional pile of tinder for this volatile mix. The best producers have been beaten down 70 - 80% from their 2011 highs. Even exploration stocks with a viable resource estimate have been eviscerated by 90 - 95%. Several primary silver miners with additional working mines and mills over the last few years are producing near break-even at today's prices, yet trade at a fraction of  5 year ago levels.One stunning example - A Yukon producer having some of the world's richest silver grades - with operations in hiatus pending a silver price above $20 - sells right now for $US 0.34. This same company with one less mine a few years ago, sold for over $10, yet has cash in the bank and earns several million dollars a year from a subsidiary performing mining site restoration work.

In mid-July, the Canadian TSX Venture Exchange (TSX.V), home to hundreds of miners, closed under 630, beneath the low posted at the height of the 2009 global meltdown. (In 2011 it traded near 2,500, and in 2007 challenged 3,500.)

What's interesting though are the number of quality miners still trading 15 - 30% above their early 2015 lows - does the "smart money" know something most others do not? Adam Hamilton, looking at the landscape, concludes that,

Radically-greater upside exists in the beaten-down gold and silver miners! This week, their leading index slumped to an astounding 12.1-year low. The last time gold and silver stocks traded at these dismal price levels, gold and silver were near $350 and $5! These miners are priced at fundamentally absurd levels today with gold and silver 3.3x and 3.0x higher - adding great leverage to the metals’ gains.

By some calculations, gold sentiment is lower today than it was in 2001 - when gold was at $275/ounce. The Morgan Report published an in-depth study this year showing that $15 silver in inflation-adjusted dollars is as cheap now as it was at the beginning of the current secular bull run around 2002.

Bullish straws in the wind:

* Silver is inflation sensitive - The new $15 minimum wage sweeping the country will elicit similar demands by workers higher up the food chain.

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