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SAN FRANCISCO (CBS.MW) -- The silver story will capture the imagination of American investors -- just not right away, says an authority on asset allocation and quantitative analysis. The slightly precious metal's price can't seem to keep track with gold these days. Earlier this week, when the euro carved a three-year high out of the hide of the U.S. dollar, gold's spot price rose as much as $7 an ounce, or 2 percent. Its poor cousin, silver, rose a few pennies, or less than a half-percent. Even Friday morning, as the dollar continued to topple from its currency perch and U.S. stocks tumbled, gold gained $2, or almost 1 percent. Silver was flat to down. Over the course of a year, the picture is just as dismal. (See one-year comparison chart.) Silver's price is flat in the one-year span that began January 2002 -- at $4.85 or so an ounce. Gold's spot price is up 25 percent, to $354 an ounce. Michael A. Berry sees the psychology of the crowd at work here. The former college professor of quantitative analysis, now a brokerage strategist, refers to Gustav Le Bon's 1895 book, "The Crowd: A Study of the Popular Mind." Le Bon explains, "When by various processes an idea has ended by penetrating into the minds of crowds, it possesses an irresistible power and brings about a series of effects, opposition to which is bootless." In real life 2003, this means most Americans, snow-stormed by a decades-long rush into stocks, have forgotten how to diversify. In the case of silver (and to a lesser extent, gold), I call this the Don Quixote effect. No one, except a faithful peasant serf, wants to touch the Man of La Mancha with a 10-foot pole. But when the tide turns, it turns in a big way. In other words: Don Quixote as rock star. The popular mind, says Berry, will embrace investments other than stocks, and then the ensuing rush will sweep aside everything in its wake. Berry has been a silver fan for years. His work on the subject, presented in several papers and speeches, identifies a wide range of new demands for silver, an industrial metal. The top strategist at small-stock market maker Leeb Brokerage chronicles research that shows silver as a possible replacement for the bacteria-battling agent chlorine.
Medical uses as disinfectants and anti-bacterials are also growing. Berry also points to anti-microbial silver compounds that combat pathogens, such as Legionnaires Disease, salmonella and e-coli bacteria. Silver solutions that could prolong the life of lettuce and other produce are also in the works. See: Asset allocations need surgery, silver. Worldwide silver inventories of 400 million or so ounces are a fifth of what they were in 1990, says Berry. The former business school professor at James Madison University and the University of Virginia favors radical shifts in asset allocation for ordinary investors. These include silver and gold. Several institutions, among them the World Gold Council, are developing plans for an exchange-traded fund that would make it simple for ordinary folks to buy actual, securitized gold in stock-market trading. For the most part, the big Wall Street and London banks routinely ignore gold, silver (and agricultural commodities) in their asset allocation models. Berry is a believer in silver. He tells me, "Warren E. Buffett purchased 129.7 million ounces of silver in 1998. He must believe in its worth. George Soros and his Quantum Fund own 32 percent of Apex Silver Mines (SIL: news, chart, profile). Bill Gates owns at least 10 percent of Pan American Silver (PAAS: news, chart, profile)." Even with demand for silver increasing about 4 percent a year, most investors are giving the metal Man of La Mancha treatment, Berry says. This week, I asked Berry for his favorite silver-mining investments. Here they are. Apex Silver: "Superb management team led by Tom Kaplan, great field of geologists and very strong financial backing globally," he says. "This team has 470 million proven ounces of silver in Bolivia, and they have an exploration plan second to none in the mining industry, which is where real wealth will be created. Though they have not yet mined San Cristobal (in Bolivia), they will control much of the world's silver when the time comes."Industrias Penoles SA (IPOAF: news, chart, profile): "The Mexican miner has focused on silver and knows its own backyard the best. Stock is very cheap and they are a good management team, with Jaime Lomilin
leading the group." Western Copper Holdings (CA:WTC: news, chart, profile). "WTC Toronto is a real up-and-coming silver story. They have an open-ore body in the Concepcion del Oro region of Zacatecas, Mexico, that has never been explored before. Tom Patton, who used to run exploration for Kennecott, is the key operating person, and Tom Turner is the field geologist who knows more about Mexican silver deposits than any man alive. Western Copper should list on the American Stock Exchange this year." Several mining companies, among them gold and silver miner Wheaton River Minerals (WHT: news, chart, profile), which is active in Mexico, have seen their Toronto-listed shares gain sharply, 25 percent and more, in the first few weeks of AMEX trading. Western Copper's shares, traded in Toronto, have quadrupled over the length of a year, even with silver prices flat. (Don Quixote is getting respect somewhere in investor-land.) "It could double or triple from here, and yes, I own the stock," says Berry.
Berry also lists Cardero Resource (CA:CDU: news, chart, profile), a Toronto-traded company that Robert Bishop of Gold Mining Stock Report, one of the longest-running mining exploration publications, highlighted recently. See: 2003 bright spots. Finally, Berry points to Quaterra Resources (CA:QTA: news, chart, profile). "It has Nieves (in Zacatecas, Mexico). Though only six holes have been drilled, they all intersected silver, zinc, lead and gold mineralization," he says. "This is a very interesting story that will be discovered this year." Quaterra is a sister company of Western Copper. Bullion proponents to gather Gold-silver fund managers, analysts and mining executives will gather for their next major conference in Vancouver, British Columbia. The late January gathering, the Vancouver Investment Conference, will feature several gold mining analysts and newsletter editors whose hit rates on promising exploration companies were outstanding in 2002, among them Brent Cook, a geologist for Global Resource Investments. See: Canada Gold Show.
StockWatch via e-mail You can get free delivery of Thom Calandra's StockWatch every trading day. Sign up for Thom Calandra's StockWatch newsletter at MarketWatch.com. For faster service, sign up for the Thom Calandra's StockWatch alert, also free.Thom Calandra's StockWatch is in its seventh year at CBS.MarketWatch.com. |
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