Shares of silver and gold minerFirst Majestic Silver(NYSE:AG) were higher by an impressive 12% or so at roughly 1 p.m. EDT on July 22. The price jump followed a notable advance in the price of silver, which is conveniently included in the precious metals miner’s name. There’s a longer-term story here.
The first thing to understand about First Majestic is that it generates roughly 60% of its revenue from silver, with the rest coming from gold. Silver is very clearly an important metal for the company, but like most miners it doesn’t only produce a single metal and is, thus, not a pure play on silver (despite what its name might imply). An exchange traded fund (ETF) like iShares Silver Trust, which directly owns the metal, would be a better option for specific exposure to silver. That said, silver has been on an incredible run lately and First Majestic will clearly benefit.
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Since hitting a bottom in mid-March, silver, using iShares Silver Trust as a proxy, has rallied more than 75% compared to a rise of “just” 23% for gold, using SPDR Gold Shares as a proxy. Notably, silver’s price is up over 15% in just the last five days. That corresponds to an equally impressive gain in First Majestic Silver’s price, which is up more than 30% over that same span. It’s all basically tied into the company’s relatively heavy exposure to silver.
Silver is a notoriously volatile precious metal that is often even more turbulent than gold. The current price advance for the metal, and the companies like First Majestic Silver that mine for it, is exciting, but don’t look at this as a reason to buy silver or silver-heavy miners. Investor sentiment could just as quickly reverse course and send silver sharply lower again.
For long-term investors, precious metals are probably best viewed as diversifying assets, with a small portion of a portfolio allocated to the space on an ongoing basis. Jumping in and out trying to time silver’s price moves could end up being a recipe for disaster. It’s worth noting that the shares of miners like First Majestic Silver often move far more dramatically than the precious metals themselves, which would accentuate the downside just as much as it has excited on the upside.