Fool's Gold Report: Can Silver Turn Around? Bullion Says No; Miners Say Yes

Tuesday was a quiet day for the gold market, as prices were nearly unchanged while investors predicted that the status quo would continue indefinitely. Geopolitical risk in Ukraine still exists but hasn't flared up, and the Federal Reserve's Open Market Committee is likely to continue its gradual reduction ion bond-buying activity under its quantitative easing program. The underperformer of the day was silver, which once again dropped even as other metals rose or held steady. But when you look at silver miners Pan American Silver (PAAS 2.08%), Coeur Mining (CDE 8.45%), and Hecla Mining (HL 3.56%), you get a much different picture of future expectations in the silver market.

Source: Creative Commons/Armin Kubelbeck.

Why silver is a tale of two markets
The silver market has been a weight around the neck of precious-metals investors this year, as bullion prices have underperformed gold and the platinum-group metals. Analysts blame a number of factors for silver's poor returns, including an increase in supply that currently isn't being met by rising demand. Rising silver supply is a result both of silver-mining specialists needing to boost production in order to keep revenue from falling too far, as well as other miners for which silver is a byproduct of the processing of other metals, especially gold.

Yet as far as silver has fallen from its highs near $50 per ounce a few years ago, costs of silver production remain in the high teens, which is low enough for companies to stay profitable in the long run if prices don't erode further. Admittedly, Pan American Silver, Hecla Mining, and Coeur Mining have all posted earnings losses recently, but for the most part, those losses have resulted from massive asset writedowns and impairment charges that they've had to take as silver prices have fallen. In fact, Coeur, Hecla, and Pan American have all made strides to cut expenses and make themselves more profitable even with relatively low silver prices, and investors are rewarding them all today in the hopes that they'll deliver in the long run.

In the next week or two, all three companies are expected to report earnings, and investors believe Pan American Silver will stay modestly profitable while Hecla Mining falls to break-even status and Coeur Mining posts a loss. Fortunately, though, this quarter should be the last one of poor comparisons, and the appearance of having hit bottom could help mining stocks keep outperforming silver bullion into the future.

How metals moved today
June gold futures fell $2.70 per ounce Tuesday, settling at $1,296.30. July silver futures were dropped $0.08 to settle at $19.54, while platinum-group metals were generally higher.

Source: Kitco. As of 4:30 p.m. EDT.

Tomorrow, keep your eye on the Federal Reserve as well as the ever-present geopolitical situation. Moreover, with more earnings reports from the gold and silver mining sector, make sure you know which players keep winning while others need further work to keep up.