Silver Stocks (SIL) Fall, Sprott Sees “More Upside” Ahead

Silver stocks fell Thursday as the Global X Silver Miners ETF (SIL) retreated 0.8% to $26.54 per share.  The sell-off in silver stocks and the SIL was fueled by weakness in precious metals – stemming from the European Central Bank’s (ECB) announcement of new dollar liquidity measures.  Silver futures turned lower alongside silver stocks and the SIL on the news, with the COMEX December contract falling $0.37, or 0.9%, to $40.16 per ounce.

With this morning’s weakness in silver stocks, the SIL extended its year-to-date loss to 2.2%.  The components of the SIL – primarily large-cap silver stocks – have substantially lagged the price of silver in 2011, which has surged higher by 30.4%.

Commenting on the underperformance of silver stocks, hedge fund magnate Eric Sprott reiterated his positive outlook on the sector in his firm’s monthly commentary.  Sprott – the billionaire founder of Sprott Asset Management – wrote that “We are still finding opportunities in select gold and silver mining companies that can be purchased today at 2-3 times their 2-year-out forecasted cash flow.  These multiples are based on the current gold and silver spot price, and if these companies hit their production targets, and gold and silver continue their appreciation – we may discover that these stocks were trading at less than 1 times 2-year-out cash flow today. Having been in the business for many years, we can tell you that investing in a stock at 1 times 2-year-out cash flow tends to be a winning proposition – let alone in an industry that literally mines the world’s reserve currency out of the ground.”