Industry News

World Gold Council – Gold Investor October 2016

World Gold Council LogoGold and the new normal

Mohamed El-Erian

Mohamed El-Erian is chief economist at global insurer Allianz and former CEO of PIMCO, the world’s most influential bond investment firm. He assesses the challenges faced by the global investment community and the contribution that gold can make within investment portfolios.

“A growing number of investors are recognizing the potential of gold to increase returns and improve risk-mitigation attributes of well-diversified portfolios.”

Where next for gold?

Gold Investor, October 2016 - Where next for gold?

Simona Gambarini, commodities economist at leading research consultancy Capital Economics, suggests there is further upside to the gold price even if US interest rates begin to rise.

“Going forward, lingering global risks should ensure that demand for gold as a safe haven asset remains elevated even in light of Fed tightening.”

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Japan and the allure of gold

Gold Investor, October 2016 - Japan and the allure of gold

Osamu Hoshi, Executive Officer, General Manager Frontier Strategy Planning and Support Division at leading Japanese trust bank Mitsubishi UFJ Trust and Banking Corporation analyses the appeal of gold to Japanese institutions.

“The perception of gold is changing among Japanese investors, driven by a growing appreciation of gold’s contribution to portfolio diversification, wealth protection and risk management.”

Shari’ah Standard

Gold Investor, October 2016 - Shari’ah Standard

Dr Hamed Hassan Merah, Secretary General of the Accounting and Auditing Organization for Islamic Financial Institutions explains the benefits of the new Shari’ah standard for gold, launched in partnership with the World Gold Council

“Shari’ah-compliant investment options in the gold market can provide Islamic Financial Institutions and their customers with a great opportunity to diversify their investments”

For more research see the World Gold Council website here.


Give Gold This Diwali

Diwali, the Hindu festival of lights, falls on 30th October this year and is celebrated by the giving of gifts. Gold is traditionally given, amongst other carefully considered gifts, to show thoughtfulness and creativity. Have a look at our special Diwali infographic, which will hopefully ‘shed some light’ on the dilemma of what to give the person who has everything.


The Indian gold market has suffered some challenging times over the past few years, but yet every year during the final quarter, as wedding season gets under way, there’s a renewed interest as Indian families flock to buy the yellow metal.

Diwali, the Hindu festival of lights, falls in October and is celebrated by the giving of gifts. Gold is traditionally given, amongst other carefully considered gifts, to show thoughtfulness and creativity. Have a look at our special Diwali infographic below, which will hopefully ‘shed some light’ on the dilemma of what to give the person who has everything.

Give Gold this Diwali!

Diwali (or Deepavali) the Hindu festival of lights, is celebrated by the giving of gifts. Lakshmi, (one of the goddesses to whom Diwali is dedicated), is, in fact, the goddess of wealth, fortune and prosperity and the festival is a vibrant, joyous occasion – full of colour and light.

Gold is traditionally given, amongst other carefully considered gifts, to show thoughtfulness and creativity. So what are some of the usual presents exchanged?  Well, we’ve done a quick round-up of some of the gifts you might expect and some that are a little more… unusual!

Hopefully, if you’re scratching your head for gift ideas, you’ll be inspired after reading this.


The traditional brightly coloured delicacies of gulab, juman, soan papdi, rasgulla and barfi make the perfect treat for anyone with a sweet tooth.

Dried Fruits

Are always well received as can be stored for long periods of time

Gift Hampers

There are some amazingly luxurious hampers available, combining flowers, fruit, sweets and even maybe a statue of Lord Ganesh

Now on to …

Gold – the gift that lasts

Any Diwali celebration is incomplete without gold based gift items.
Insider's Guide to gold and silver


Gold jewellery is always a firm favourite. For the lady in your life, how about a beautiful gold chain studded with jewels, or a stunning pendant, gold earrings, an ornate ring, bracelet or ankle chain …the list is endless! For kids, there are studded pendants of everything from penguins to elephants or even rocking chickens and glittering guitars!

And if you’re buying for a gentleman, how about some impressive gold cufflinks or a stunning watch?

A sleek, gold pen for recording all those momentous occasions in life?  Or how about a smart gold business card holder or a gold paperweight to sit on their desk for all to see?

As Diwali is a time of celebrating family and creating memories, what better idea than a gold photo frame?

We also came across a gold telescope, and an antique record player complete with gold horn.   But if you think a more modern gift might be more appreciated, how about a gold iPad or iPhone case?

Gold coins – you could also make a gift of gold coins, depicting the goddess Lakshmi, which is thought to bestow luck and prosperity on the recipient. Coins are something to treasure for a long time and make great heirlooms.


It’s not just all about gold. Silver is also a traditional gift for the occasion of Diwali. There are Lakshmi and Ganesh silver coins available, as as well as ornate silverware pieces.

Decorative pieces

For the home are always a good idea as it’s a great opportunity to give something they wouldn’t necessarily buy themselves. Diwali is all about new beginnings, so wall hangings, metal lanterns, gold vases & silver teaspoons are all well received. We even found a decorative gold canon!    You might even opt for a gold statue of Lord Ganesh engraved on a leaf.

At Physical Gold, we offer various options for purchasing tax-free gold from rare coins – which are collector’s items –  to gold bullion. By investing in certain gold coins, such as UK Sovereigns and Britannias, there’s no Capital Gains Tax as they are actually legal tender in the UK.

We also offer a range of options for investing in silver too and a monthly savers account.  Maybe not quite as romantic as a necklace, but still just as attractive if you’ve made a generous first deposit!

Industry News

LBMA Announces the Chosen Provider


Wednesday, October 12, 2016


The LBMA is delighted to announce that Boat Services Ltd, in a joint submission with Autilla, has been selected as the chosen provider in the LBMA’s Request for Proposal (RfP) process.

The aim of the RfP is to deliver new services to the precious metals market and in doing so improve transparency, efficiency and expand the technology requirements in the market. The latest Fair and Effective Markets Review (FEMR) Implementation Report of July 2016 also acknowledged that the LBMA has been “focusing on trade reporting as a priority in response to the market commitment by LBMA members to enhance transparency.”

In the first quarter of 2017, the LBMA together with Boat, a fully owned subsidiary of leading exchange and clearing technology provider Cinnober, will launch a trade reporting service, which will also support the development of valuation curves thereafter. The delivery of these services addresses the immediate regulatory, cost and growth requirements of the market, and will connect the new services to a technology backbone called the LBMA-i. Boat, together with the LBMA, are launching a design study to help develop and deliver these services. Any LBMA members who would be interested in contributing are invited to contact Sakhila Mirza, LBMA General Counsel at

The LBMA remains engaged with the market to launch further new services in the future,

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for example, trading venue and OTC Clearing/CCP as and when the market requires.

Ruth Crowell, Chief Executive of the LBMA commented “I am very pleased that Cinnober’s Boat has been selected. This brings to an end a period of consultation with market participants. This is an innovative and dynamic technology combination and as such are an excellent fit to deliver the services and infrastructure requirements on behalf of the precious metals market.”

“We are absolutely delighted to have agreed Heads of Terms with the LBMA,” said Jamie Khurshid, CEO of Boat Services Ltd. “By selecting Boat, in partnership with Autilla, the LBMA have started the journey to adopt the most significant regulatory reporting and OTC transparency solution since MiFID was introduced in 2007. As a team we’ll combine over 50 years of precious metals experience in developing OTC markets with award winning technology, that underpins some of the world’s largest exchanges and clearing houses.”

“As a company group, we have a long tradition of developing innovative solutions to solve industry challenges. We take pride in being the partner for the LBMA’s vision for greater transparency in the precious metals market landscape,” Khurshid concludes.

About Boat Services Limited

Boat was established in 2007, offering MTFs, SIs and investment firms an easy and cost-efficient way to comply with transparency obligations. Ever since, Boat has operated with exceptional uptime, and is the trade data monitor (TDM) with the most comprehensive offering of reportable instruments, including more than 10,000 stocks and ETFs across Europe, the Swiss and Russian markets. Ever since Boat’s inception, its core technology has been supplied by Cinnober. In 2014 Cinnober acquired Boat ensuring the continued existence of a specialized provider, committed to the long term delivery of transparency services to the benefit of the industry.

About Cinnober

Cinnober provides solutions and services to leading trading and clearing venues, including exchanges, clearinghouses, banks and brokers. Cinnober’s solutions are largely based on the TRADExpress™ Platform, incorporating everything needed for mission-critical solutions in terms of performance, robustness and flexibility. The portfolio of offerings includes price discovery and matching, real-time risk management, clearing and settlement, index calculation, data distribution and surveillance. There will be a continuously growing demand for a flexible and independent technology partner that can deliver mission-critical solutions to changing markets all over the world. Cinnober’s customers of today include the Australian Securities Exchange, BM&FBOVESPA, Dubai Gold & Commodities Exchange, Euronext, Japan Exchange Group, Johannesburg Stock Exchange, the London Metal Exchange, LME Clear, NYSE and the Stock Exchange of Thailand.

Industry News

2017: Gold and Silver’s Year of "Public Recognition"


David Smith Wednesday, September 28th

In all probability, December 2015 marked the bottom of the cyclical gold and silver bear market – a bear cycle that had been in play since silver topped in May 2011 and gold in September of the same year.

During the fourth quarter 2015, share price declines of the precious metals mining companies tapered off once the last of the weak hands gave up and sold their positions to stronger, forward-looking investors.

Endeavour Silver Weekly Chart

Endeavour Silver Weekly Chart

If you go to a free chart service like, you can choose any number of mining stocks and look at their January 19 daily price action. On this date – for most of the top and second-tier companies – the last intraday price plunge took place. For purpose of example only, we have chosen Endeavour Silver.

Notice how the price made a new low, then moved up into the preceding day’s/week’s range to close on a strong note for the session. It’s likely this low print will not be touched again during the current bull run.

What Have Physical Gold and Silver Been Doing?

Silver has risen more than 40% so far this year; gold is up almost 20%. Dozens, if not scores, of mining stocks rose several times as much (as expected). In fact, Jim Flanagan, who keeps track of the size and duration of first leg bull market runs across many asset classes, had the following to say about this year’s multi-month mining stock rise:

The 175% Advance in Gold Stocks in 5 Months, 22 Days Now Places Us As the 11th Greatest 1st Leg Up in Any Bull Market in Any of the Tangible Assets During the Past 150 Years. In Other Words, It Is the Elite of the Elite.

A few resource sector newsletter writers got their subscribers onto “the right side of the trade” early this spring, but a number of others either jumped out too early at the first sign of a “correction” (of which there have been 6), or sat out the entire year, waiting for what they hoped would be a low-risk entry point.

Silver Prices (2011-2016)

Silver Prices (2011-2016)

The World’s Central Banks Are Buying Up Mining Stocks

While there was considerable institutional, individual, and hedge fund buying of both the miners and metals, an unexpected long side category of customer has recently emerged.

Central Bank Net Gold Purchases

Deutsche Bank, Germany’s (and Europe’s) largest – otherwise in very poor financial shape – is said to be holding no less than 50 mining sector stocks, with a total market value of over $2 billion. The Swiss National Bank holds 25 stocks at a $1 billion market value. Now Norway’s Central Bank (Norges Bank) has filed notice with U.S. regulators that it too holds securities in 23 mining stocks to the tune of just under $1billion.

Isn’t it ironic that the very financial entities who have been instrumental in flooding the world with un-backed currencies are now buying mining stocks as insurance for their own financial holdings? (Not to mention that, since 2010, central banks have been net buyers of physical gold!)

Public Recognition Will Kick In above $26 Silver and $1,500 Gold…

In almost every major bull market, the public begins to arrive at the party after the first few

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innings have been played. This time around we can make a guesstimate as to what price levels are likely to “trigger” a wave (waves?) of physical metals’ buying by newly-informed, recently-committed members of the public.

Note on the weekly silver chart above, the $26 level when touched for the fourth time in 2013 broke down sharply, initiating a further two years of decline. A rule of charting is that broken support becomes resistance to a return move.

Therefore, it is reasonable to expect that $26 will offer a major (initial) impediment to rising prices.

When the $26 level is decisively penetrated on the upside and a base built above it, prices have the potential to accelerate rapidly.

David Morgan and I are working on a book dealing with metals and the mining stocks, titled Second Chance: How to Make, and Keep Big Money During the Coming Gold and Silver Shock-Wave, due out early this fall.

In one chapter, we list in bullet form some of the “indicators” we believe will mark the way for greatly increased public sector precious metals involvement. They include:

  • Upside penetration by gold of horizontal resistance-becomes-support (HSR) levels in hundred dollar increments from $1,500 to and through $1,900.
  • Penetration of and successful base-building by gold (via retesting) above $2,000.
  • Upside penetration by silver of horizontal resistance-becomes-support (HSR) levels in five dollar increments from $25, to and through $45.
  • Penetration of and successful base-building (via retesting) above $50 silver.
  • The leading edge of the public mania wave starts building as these upside layers of resistance are successfully penetrated and turned into support. 2017 is most likely the year during which the public recognition phase gets underway.
  • New all-time nominal highs in gold (>$2,000) and silver (> $50) ushers in even more public involvement, leading to what we believe will be the final and most massive move for the precious metals and associated shares.

As these events are taking place, the effect on availability (as well as on expanding premiums) for physical gold and silver will be profound. As new nominal highs in both gold and silver are printed, several situations begin to develop.

  • Precious metals become more difficult to find as available supplies dry up.
  • More counterfeit bullion and “collector” coins and bars circulate in the market place.
  • The price, first of gold, then silver becomes elevated to the point that fewer people can afford to buy in quantity. The market rations supply and premiums expand sharply.

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Late August into September ushered in an intermediate and much needed correction to the year’s blistering uptrend for the metals and miners. If you believe, as we do, that the new bull run for gold and silver has at least several more years to run, then going against your emotions and adding to your position – or starting a new one – is the right thing to do.

Adam Hamilton sums it up well when he demonstrates a key trait which separates those who do well as investors, from the rest, who just hope, plan, and watch. Says Adam:

Buying low is never easy. When selloffs snowball to major levels, there’s always a chance they will cascade even lower. So it’s very challenging psychologically to fight the thundering herd and buy when everyone else is selling. It feels terrible buying into capitulation selloffs, almost nauseating. The only way to build the fortitude necessary to do it is to stay exceptionally informed, which helps frame selloffs in context.

Even after you’ve done the research and decided to participate, buying into price weakness against the herd and contrary to your emotions is not an easy thing to do. But time and again, some of the world’s most successful investors have done just that. You might want to consider joining their ranks


Australian Nugget

Australian NuggetThe Australian Nugget gold coin was introduced in 1986 with a face value of $100 AUD and is legal tender in Australia. The coins are minted in 24 karat gold and are seen as a great way to own gold in its purest form.

Australian Nugget

Country: Australia
Face Value: $100 AUD
Gold Content: 31.104g
Purity: 99.99% (24 karat)
Gross Weight: 31.162g
Coin Diameter: 32.10mm
First year of issue: 1986

The Nugget is one of only a few bullion coins to change their design every year. For this reason, combined with its low quantity minted, the Austrailian Nugget (or Kangaroo) is one of the world’s most desirable bullion coins for investors and collectors.

Find out the secrets to selling your gold coins at the highest possible price. FREE pdf

During the first three years of the Nuggets’ issue the reverse of the coin featured a picture of a different famous gold nugget. From 1989, the design was changed to display different Kangaroos, a more world-recognised symbol of Australia. The obverse features a profile portrait of Queen Elizabeth II.

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Gold coins in Australia

As a member of the British Commonwealth and a part of the British Empire, Australia has had a long history of gold coins. The first sovereigns were introduced in the country in 1855. These were first produced at the Sydney Mint and introduced as legal tender in each Australian colony. These sovereigns resembled the British sovereigns, with one exception. A tiny mintmark was included to show which Australian mint it originated from. At the time, Australia was part of the Empire and the coins had to have approval from the Royal Mint in London. In fact, all the Australian mints were considered to be branches of the Royal Mint. It was through this rigorous testing process that the Australian mints became early pioneers of global standards in the purification of gold.PHYS01_Animated_Gif_2_MPU

Australia now holds the world record for having produced the largest and most valuable gold coin in history. The one-tonne gold coin was created in 2011 and has a face value of one million Australian dollars. The gigantic coin is around 80 centimetres in diameter and 12 centimetres in depth. Valued at over 53 million Australian dollars at the time, the front of the priceless coin has a red kangaroo, with a portrait of the Queen on the back.

Australia is one of the world’s highest gold producing countries and the Nugget is their premier coin. Produced by The Perth Mint, it shouldn’t be confused with the Australian Lunar gold coins which depict the various animals of the Chinese calendar instead.

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The 31.1 g nugget represents a wonderful opportunity for enthusiasts, collectors and investors alike to have this historic coin. The coin is 24 carat with a purity of 99.9% and is a great investment. As the price of gold climbs steadily, investors have a positive outlook for the metal in 2018. Therefore, it is a good time to invest in gold, either as a preferred investment or simply a diversification strategy. The slow European economy, coupled with the uncertainty of Brexit, makes it prudent to move into more defensive asset classes that will not devalue easily and promise a steady return. That’s exactly what gold does and it looks as though it will continue doing just that.

The nugget is an excellent coin to invest in and it will protect your investment while enabling your family and you to admire one of the finest creations in gold from down under. Please call our gold investment advisors on 020 7060 9992 or simply drop them an email on They can help you purchase the nugget, as well as introduce you to a variety of great gold coins that are in no way lesser than the nugget when it comes to making robust investment for your family and you.


Industry News

Gold/Silver Ratio Rises Dramatically as Rate-Hike Bets Fuel US Dollar Demand

economic calendar

The relationship between gold and silver has changed dramatically over the past two weeks, as demand fro precious metals tanked on growing bets that the US Federal Reserve will raise interest rates in the coming months.

The gold/silver ratio used by investors to assess the relative value of precious metals closed at 72.09 on Friday, the highest level since July. Gold’s premium over silver has risen 6% over the past 30 days and nearly 7% compared to two months ago.

While both metals have declined sharply this month, silver’s drop has been even more dramatic. Spot silver, the price paid for immediate settlement, has declined 8.2% so far this month. The grey metal is down more than 12% from the September 22 settlement high of $20.10.

According to Apmex, spot silver settled at $17.61 USD per troy ounce Friday.


Meanwhile, spot gold has declined 4.4% this month. Compared to three weeks ago, the yellow metal is down more than more than 6%.


Spot gold closed at $1,258.80 a troy ounce Friday at 4:00 pm ET, according to Apmex.

Precious metals spiked Friday morning after softer-than-expected US jobs data raised doubts about the health of the labour market. However, the general view on Wall Street was that nonfarm payrolls growth in September was sufficient for the Federal Reserve to maintain its existing outlook on monetary policy. The central bank’s “dot plot” summary of interest rate expectations last month showed that officials still anticipate one rate increase this year. Improved economic data in recent weeks have stoked expectations for a December liftoff, thereby boosting the US dollar.

The dollar soared last week, climbing to its highest level in two months.

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US multinational investment bank Goldman Sachs has warned of further downward bias in gold prices this year. However, the bank’s analysts did note that the metal will continue to benefit from strong physical and ETF demand. It also cited a potential increase in prices due to higher Chinese demand.

“Indeed, we would view a gold sell-off substantially below $1,250 an ounce as a strategic buying opportunity, given substantial downside risks to global growth remain, and given that the market is likely to remain concerned about the ability of monetary policy to respond to any potential shocks to growth,” Goldman analysts said in a note Friday.

Industry News

Silver Miners’ Enjoying An Epic Year

investing.comBy Adam Hamilton Sep 04, 2016 05:31AM ET

The silver miners’ stocks have enjoyed an epic year, skyrocketing higher with silver’s new bull market. At best since mid-January alone, some of these elite stocks had actually septupled! Naturally such extreme gains beg the question of whether they can possibly be fundamentally justified. The recently-released second-quarter financial and operational results of the top silver miners offer much insight on this.

Back in mid-December leading into the Fed’s first rate hike in 9.5 years, silver was pounded to a dismal 6.4-year secular low. Sentiment was overwhelmingly bearish, the breeding ground of major bottomings. Indeed silver soon started climbing with its primary driver gold heading into 2016. As usual silver got off to a slow start, with traders skeptical until gold rallied far enough and long enough to entice them back.

In Q1’16 silver really lagged gold, with a weak 11.7% advance to gold’s 16.1%. Once silver bulls get underway in earnest, silver tends to amplify gold’s upside by 2x to 3x. And that already started happening in Q2’16, which saw silver surge 21.4% higher on a mere 7.4% gold rally! This acceleration is what ignited silver stocks. Was their buying fueled purely by greed, or did it have real fundamental underpinnings?

This crucial question for investors couldn’t be addressed until mid-August, when silver miners’ Q2’16 results were fully released. Publicly-traded companies in the US are required by the Securities and Exchange Commission to report their earnings four times per year. The deadline for filing is 45 days after quarter-ends. I first looked at gold miners’ Q2 results, then gold juniors’, and now it’s silver miners’ turn.

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Silver mining is a tough business geologically and economically. Primary silver deposits, those with enough silver to generate over half their revenues when mined, are quite rare. Most of the world’s silver ore formed alongside base metals or gold, and their value usually well outweighs silver’s. According to the venerable Silver Institute, only 30% of 2015’s global mined supply came from primary silver mines!

Well over 2/3rds of the 886.7m ounces mined last year was simply a byproduct of base-metals and gold mining. And as scarce as silver-heavy deposits supporting primary silver mines are, primary silver miners are even rarer. Since silver is so much less valuable than gold, most silver miners need multiple mines. And these often include non-primary-silver ones, usually gold, to bolster the lower silver-mining cash flows.

So the universe of major silver miners is pretty small. The definitive list of these companies to analyze comes from the most-popular silver-stock investment vehicle, the Global X Silver Miners (NYSE:SIL). SIL dominates the silver-stock-ETF space, with net assets running 5.0x its next largest competitor’s. Since ETF investing is becoming the new norm, inclusion in SIL is a major boon for silver-mining companies.

While there aren’t a ton of silver miners to pick from, major-ETF inclusion shows silver stocks have been vetted by elite analysts. It also ensures the fund capital flowing into leading silver-stock ETFs benefits their components. The ETF managers shunt excess differential buying pressure on their shares directly into the underlying component silver miners held by these ETFs, bidding their individual silver stocks higher.

As of the middle of this week, SIL included 21 major “silver miners”. This term is used somewhat loosely, as SIL includes the massive silver streamer Silver Wheaton Corp (NYSE:SLW) that doesn’t actually mine, Mexico’s giant mining conglomerate Industrias Penoles for which silver is just a minor byproduct, gold miner Alamos Gold which doesn’t mine any silver, and MAG Silver which doesn’t have its silver mine in production yet.

Nevertheless SIL is what we’ve got, so I dug into the Q2’16 10-Q reports released by this ETF’s top 17 components. That number was chosen because that many stocks fit neatly into this table below. But with these top 17 SIL components commanding fully 97.2% of SIL’s total weighting, they are really all that matters. I collected a bunch of key data from each, and fed it into a spreadsheet for sector-wide analysis.

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This table starts with market-level information including each SIL component’s stock symbol, exchange traded on, current weighting in SIL, and market capitalization. After that is a critical metric for investors looking for purer silver-mining exposure, the percentage of each company’s quarterly sales that actually came from silver mining. Silver-stock investors generally want silver exposure, not gold or base metals.

The formula for this silver-percentage approximation is simple. Each company’s Q2’16 silver production is multiplied by that quarter’s average silver price, and the result divided by total quarterly revenue. This number isn’t perfect, it can be skewed. Sometimes silver miners sell more or less silver in a quarter than they produced, due to the timing of actual sales. Byproducts and hedging can also pull this number around.

The true primary silver miners that derived over half their Q2’16 revenues from silver have percentages highlighted in blue. That column is followed by cash costs per ounce of silver mined, all-in sustaining costs per ounce, and AISC guidance for full-year 2016. Next comes quarter-end cash balances and the cash flows generated from operations in Q2’16. Finally last quarter’s silver and gold production is noted.

Provocatively there isn’t a single major silver miner today that doesn’t generate a large portion of its total sales from gold mining. That’s both as a byproduct in silver mines and in separate primary gold mines the silver miners also own. Pure silver miners don’t exist! Depending on your view, they are either all augmented by gold or adulterated with it. That helped silver miners’ fundamentals improve dramatically in Q2’16.

SIL Component Companies Fundamentals 2016

SIL Component Companies Fundamentals 2016

When I last did this top-SIL-component analysis using Q1’16 data several months ago, 7 stocks qualified as primary silver miners with over half their quarterly sales from silver. All of the top 17 SIL components that provided enough data to compute their silver percentages averaged out to 44.9%. I figured that as silver’s gains started outpacing gold’s, these key numbers would rise. But they were essentially flat in Q2’16.

Only 6 of the top 17 SIL components generated 50%+ of their revenues from silver last quarter, and the average only rose modestly to 45.3%. This may sound rather odd considering silver’s average price rose 12.7% sequentially from Q1 to Q2, compared to just 6.3% for gold’s. That didn’t translate into a higher overall silver percentage because these silver miners collectively increased their gold output quarter-on-quarter.

Overall silver production of these top miners impressively rose 4.6% in Q2 compared to Q1, to 77,852k ounces. But their collective gold production growth even exceeded that, up 6.1% quarter-on-quarter to 1273k. Silver miners’ outpacing gold-mining growth was driven by their active diversification into gold. The cash flows from silver mining are rarely spectacular, since silver’s price is always low relative to gold’s.

And that perpetual disparity of cash flows between silver and gold mining ballooned to gaping extremes in the recent dark years. As silver languished near major secular lows, silver miners sought to augment their cash flows by buying gold mines. Naturally this process takes time, as it isn’t easy to find a suitable acquisition target, prepare and execute the purchase, and integrate the new mine into current operations.

This trend is far from over, as gold mining’s far-higher cash flows really reduce the operational risks of silver mining. Tahoe Resources Inc (NYSE:TAHO) is a prime example. Spun off by Goldcorp Inc (NYSE:GG) as a totally-pure silver miner operating one of the world’s largest silver mines, Tahoe bought the gold miner Lake Shore Gold and is now overwhelmingly a primary gold producer in terms of revenue. Silver purity is fading among its miners.

Since some of these elite silver miners use gold as a byproduct credit, its sales directly reduce the costs of mining silver. This is evident in silver miners’ costs last quarter, which fell considerably. Cash costs are the classic way to measure silver-mining costs. They include all direct production costs of mining silver, mine-level administration, smelting, refining, transport, regulatory, royalty, and tax expenses.

Cash costs are the acid-test measure of silver-miner survivability, revealing the silver levels needed to keep the doors open and pay the bills. Incredibly in Q2’16, they averaged just $5.32 per ounce! This was not only far below silver’s $16.79 average price, but a whopping 11.2% lower than Q1’s cash costs. This is almost exclusively due to higher byproduct credits, primarily gold but also base metals in some cases.

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Far more important are the elite silver miners’ all-in sustaining costs. This vastly-superior measure was introduced in June 2013 by the World Gold Council. In addition to all direct cash costs, AISC also add on everything necessary to maintain and replenish operations at current silver-production levels. This includes exploration for new silver to mine, mine development and construction, remediation, and reclamation.

All-in sustaining costs also include the critical corporate-level administration that oversees silver-mining operations. In Q2’16, the top 17 SIL silver miners reporting AISC had average levels of just $10.05 per ounce. That’s 2.2% better than Q1’s average, but far more importantly way below that $16.79 average silver price in Q2. That implies the silver-mining industry’s operating margins have soared to $6.74 per ounce.

That’s a staggering 46% jump sequentially in Q2 alone, a massive increase! This stock-market-leading surge in operating profitability helps explain why silver stocks were bid sharply higher in Q2. Profits ultimately drive stock-price levels, and silver-mining profits were exploding as silver’s new bull started to accelerate. The sole reason investors own silver stocks is for their great profits leverage relative to silver.

Silver mining costs are essentially fixed in the mine-planning stages. That’s when mining engineers decide which ore bodies to extract, how to dig to them, and how to process that ore to recover the silver. The vast majority of these costs of moving and processing rock are fixed, they don’t change much no matter what silver’s price does. This ensures silver-mining profits soar far faster than silver’s own gains.

At AISC near $10 per ounce, silver miners earned about $7 in Q2’16. Yet so far in Q3, silver’s average price has powered up another 17% to $19.69. Thus silver-mining operating profits are likely now up near $10 per ounce, another 43% gain! The higher silver runs, the greater the profits growth the silver miners will enjoy. And silver remains relatively low, with its young bull market still having lots of room to soar.

Back in 2012 for example before the Fed’s wildly-unprecedented open-ended third quantitative-easing campaign started grossly distorting the markets, silver averaged $31.19. While that’s only another 58% higher from Q3’16’s average price, such silver gains would fuel a gargantuan 219% jump in operating profits from Q3 levels! The underlying fundamentals of mining silver definitely support big stock-price gains.

These rapidly-improving silver-mining fundamentals are readily evident in silver miners’ operating cash flows and cash balances. Cash flows from operations are the best proxy of current profitability, as the trailing-twelve-month price-to-earnings ratios of silver miners are now extremely distorted by huge non-cash writedowns. These accounting-construct losses flared in late 2015 thanks to silver’s deep secular lows.

One of the core tenets of accounting is conservatism, which demands companies anticipate possible future losses but not gains. So Q4’15’s low silver prices had to be assumed to persist indefinitely, slashing the economic value of silver mines and deposits. These were written down, with resulting non-cash losses flushed through income statements. Until these writedowns roll off trailing P/Es, they will mask real profits.

Quarterly cash flows generated from operations are the purest measure of actual profitability, avoiding all the short-term accounting fictions inherent in the GAAP earnings that feed P/E ratios. And in Q2’16, these elite top SIL components’ operating cash flows skyrocketed a mind-boggling 135% quarter-on-quarterto $1449m! This is truly all the fundamental justification silver stocks need for their massive Q2 gains.

These radically-higher operating profits naturally fed growing cash hoards among the top silver miners. Their total cash on hand at quarter-end soared 69.6% sequentiallybetween Q1 and Q2 to $3537m! This proves that there was far more than greedy sentiment underlying silver stocks’ epic gains so far this year. This young new silver bull has already vastly improved the economics of extracting this precious metal.

Unfortunately most investors don’t yet understand what’s going on in the silver-mining realm. Not many even pay attention to contrarian investments like silver stocks. And many of those who do are scared of the silver miners’ super-high or nonexistent trailing-twelve-month P/E ratios. They don’t realize that once last year’s big non-cash writedowns roll off the latest 4 quarters, silver-mining P/E ratios are going to collapse.

By the time trailing P/Es reflect true ongoing operating profitability in future quarters, the silver stocks will have surged much higher than today’s levels. Digging deep into quarterly reports is necessary to really understand what’s going on in an industry, as trailing valuation metrics mask major reversals in fortune for up to a year. Silver miners’ immense growth in operating profitability remains hidden to all but a few.

Another thing investors must consider is where the silver stocks came from. Since gold drives silver, the silver stocks follow the gold stocks. Back in mid-January, the leading gold-stock index slumped to a truly fundamentally-absurd 13.5-year secular low. As I warned that very week, it was ludicrous for gold stocks to be trading as if gold was near $305 when it was actually way up at $1087! Silver stocks were sucked in.

Precious-metals sentiment was so overwhelmingly bearish that silver stocks were trading as if they were on the verge of bankruptcy. That was a silly assertion even then, as their cash costs and even all-in sustaining costs were well below even silver’s deep secular lows. Silver stocks had to mean revert much higher out of such unsustainable extremes, and that’s exactly what has happened so far in 2016.

So when silver stocks’ enormous year-to-date gains are considered, it’s critical to realize they emerged out of some of the most-extreme silver-stock lows ever witnessed. This year’s mighty rallies were born in epic fear, not mounting greed leading into a topping after a long bull. Since a huge mean reversion higher out of such extremes was inevitable, silver miners’ fundamental justification is just icing on the cake.

Silver miners’ latest quarterly results recently released for Q2 prove that they are not only fundamentally strong today, but rapidly strengthening. This entire industry that was left for dead in late 2015 is going to see some of the best operating-profits growth by far in all the stock markets in 2016, helping to justify the epic gains in silver-stock prices this year. They are rooted in real profits growth, not ethereal sentiment.

As silver-stock prices continue to rise in coming quarters, fueled by soaring earnings driven by higher silver prices, great gains are still to be won. While SIL is fine, the largest gains will be witnessed in individual silver stocks with superior fundamentals. Investors need to look for the elite miners with the best combination of percentage of revenues from silver, operating margins, and coming silver-production expansions.

And man, what an incredible gift this past month’s sharp silver-stock correction is! Many of the world’s best silver stocks were pummeled 20% to 30% lower since their latest bull highs in early August. They are now on sale at deep discounts, wonderful buying opportunities. If you liked silver stocks a month ago when everyone else did, you should love them today at far-superior entry prices. Talk about a great boon.

The bottom line is the major silver miners just reported an amazing Q2’16, with silver’s young new bull fueling radically-higher operating earnings. The great inherent leverage of silver-mining profits to silver prices was the fundamental justification underlying silver stocks’ epic gains so far this year. And with silver’s bull only just starting, the best gains in silver-mining profitability and thus stock prices are yet to come.

Unfortunately most investors don’t yet realize what’s going on fundamentally. They see silver miners’ extreme or non-existent price-to-earnings ratios and assume this industry is really struggling. But once last year’s massive non-cash write downs of silver-mining assets roll off the books, the silver miners’ big operating profitability will be reflected in conventional valuations. Smart investors will be fully deployed long before.