Uncharacteristic for this year, silver bullion is having a rough time this month. For August, the silver spot price has dropped almost 9%, effectively giving up July's efforts. Naturally, that has brought out the naysayers, who continue to blast all precious metal investments as basically "dumb ideas."
Yet those who hold bearish assessments on silver -- and the precious metals as a whole -- are ignoring the broader context. Yes, silver has slipped badly in August. However, the more important consideration is the integrity of the bullish trend channel that was anchored at the beginning of the year.
When comparing low-point to low-point, we see that corrective bottoms are actually rising. There was a pronounced trough in the spring, early summer, and now, late summer. In pricing terms, silver went from $14.80, to $16, to $18.75. So far this year, each correction has led to a stronger rally that exceeded the prior cycle's peak price point. While interpretations of history is not always an accurate guide, it'll take a brave trader to go against strongly established momentum.
Which brings us to the point about junior silver miners. As to be expected, the most speculative sector within mining garnered the most rewards in this year's precious metals bull market. For example, the PureFunds ISE Junior Silver ETF (NYSEARCA:SILJ) has more than tripled in value since the beginning of January. With those kinds of gains, many investors may be hesitant to jump onboard. Yet there's another side to the "don't buy hot stocks" argument common among contrarians.
Due to the inherent risks of junior miners, when the underlying market hits volatility, the damage is typically much more severe for speculative mining stocks. In this case, the SILJ can almost be traded like a leveraged exchange-traded fund (ETF). Any corrections in the silver spot-price will likely translate to deeper discounts for junior miners.
Better yet, the momentum in the silver bullion market is quite robust, as previously mentioned. That means that the downside risk -- though of course not zero -- should be significantly mitigated. So long as silver does not break its bullish trend channel, the junior miners can be a very profitable venture.
The fundamentals are also positive for precious metals. Obviously, macroeconomic uncertainty has been weighing on global markets for some time. Even if that wasn't the case, what is undeniable is that benchmark indices have not provided adequate returns for fund managers. People are looking for profit, and it's not inconceivable that more money would seek greater risk in order to get that profit.
As with any speculative opportunity, smart money management is key. Despite a high-rising silver market, that does not always equate to the mining industry doing well. Nevertheless, the setup is very intriguing for those that are willing to take a gamble.