Hi Ho Silver, Away!
Precious metals have registered a blistering start to the
year. After more than four years of defeat, gold bulls once again have
something to be excited about. The gold price is up 19% year to date and the
mining stock ETF (GDX) is up over 60% since the start of the year. Not bad
for a barbarous relic!
But one thing that generated some caution for precious
metals investors has been silver’s underperformance. You see, silver
typically leads gold higher and outperforms during major advances in the
sector. But the silver price advance had been trailing that of gold for much
of the year by a wide margin. In fact, during late February and early March,
the gold price advance was more than DOUBLE that of silver. On March 1st,
silver was up just 7.6% YTD versus 17.9% for gold.
However, this gap has closed considerably in the past
month with gold up 18% vs silver up 15% year-to-date. In the latest three
months, their performance is tied. But over the past month, silver is up 5X
the price gain in gold and today silver is up nearly 3X gold (3.6% vs. 1.3%).
This means that the silver price is finally confirming the move higher in the
gold price which is very bullish for investors of precious metals.
The early year underperformance of silver led some
investors to call into question the sustainability of the rally in precious
metals. It makes sense for silver to be underperforming given the impact of
slowing global trade and manufacturing activity. Over 50% of silver’s demand
is industrial versus just 10% for gold. The big question for those looking
closely at silver is whether surging investor demand would be enough to offset
slowing industrial demand. Furthermore, would global supplies continue to
drop as output was cut do to slumping prices and slashed profit margins at
many miners?
All signs point to a continued surge in investment demand
for silver in 2016, with Q1 Silver Eagles sales making a first
quarter record of 14,842,500 ounces. Australian Mint silver sales spiked over
50% in 2015, with the Perth Mint reporting March 2016 silver sales up 175%
vs. March of 2015! In Canada, the latest quarterly report of Silver Maple
Leafs had sales up 76% year on year. Indian silver imports were a record
8,506 Tonnes (273,473,854 ounces) in 2015.
On the supply side, Mexico is the top producer of silver
in the world and their production is set to drop by 6% in 2016. HSBC
forecasts 2016 mine supply for silver of 855 million ounces, which would be
down 12 million from 2015, and looks for this to ease further as the decade
progresses.
The bottom line is that silver has now confirmed gold’s
bullish breakout in 2016. Silver mining stocks still remain very undervalued
and oversold, but they are starting to catch up quickly. Several junior
silver stocks are up 20% or more today alone. But it is not just the juniors
having all of the fun. Many large cap silver miners are also posting impressive
results today, with Silver Standard Resources and Silvercorp Metals
both up over 10%!
One of the junior silver stocks in the Gold Stock
Bull Portfolio is now up 229% year to date. View all of the stocks in
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