Shares of precious metals miner Endeavour Silver (NYSE:EXK) rose a little more than 12% at the open of trading on July 22. At this point the stock has more than doubled over the last month, with a particularly steep ascent over the last week or so. The stock is up around 40% over the last five days alone. What's going on?
The truth is that nothing in particular has dramatically changed at Endeavour Silver itself. What has changed is investors' opinions on precious metals, with silver being the biggest beneficiary. To put some numbers on that, SPDR Gold Shares, an exchange-traded fund (ETF) that owns physical gold, is up around 6.5% over the past month. Meanwhile, iShares Silver Trust, which owns physical silver, has advanced 26% over the same span. And much of that outsized gain has come over the past week or so, with iShares Silver Trust up more than 14% over the last five days. Silver was up sharply again today, as well.
So, with a name like Endeavour Silver, it shouldn't be surprising that the miner's shares are rising sharply along with that precious metal. That said, it should be noted that Endeavour Silver generated roughly 45% of its top line from silver in the first quarter and 55% from gold. Yes, a rising silver price will clearly benefit the company's financial results, but it is hardly a pure-play silver miner.
A huge price advance in silver, or gold, is not a particularly good reason to run out and buy a precious metals miner. These metals are notoriously volatile, especially silver, and price swings are largely driven by investor sentiment. Mercurial investors could just as quickly decide they hate gold and silver as they have decided that they like the metals. And since the shares of miners like Endeavour Silver often move more dramatically than the precious metals, a directional change now could be very bad for investors. It's far more appropriate to view precious metals as a diversification tool and not a way to get rich quickly.