Thursday 19 April 2018

Silver outperforms gold for a change

There seems to have been increased talk about silver over the past few weeks.  Rather than rehashing the reasons why, here are a couple of good articles about how it may be silver's turn to shine:
I'd also previously indicated on this blog that a gold-silver ratio of 80 has historically marked the bottoms for silver.

Interestingly, silver moved up 2.5% yesterday while gold was only up 0.2%.  Could this be the start of a mean-reversion trend that sees silver move back towards its more typical range of 1-to-65 versus gold?  That would imply that silver should be trading at $20.75/oz, based on the a gold price of $1,349.  I hope so, given the significant silver exposure in my portfolio.  However, I have a hard time believing that silver can have a significant rally without gold's participation.  If gold can break out of its range and trade above $1,370, then I think silver will do very well.

While on the topic of relative performance, Scotia Mining Sales had an interesting graphic yesterday showing the performance of over 50 gold and silver mining stocks.  I thought the variability of performance was quite interesting, especially given that gold, silver, the GDX and GDXJ were all huddled right around the 0 mark.  Picking the right stock in the past year certainly made a big difference on returns.  

Red = Gold
Blue = Silver
Yellow = Streaming/RoyaltyCo
Black = Index / Commodity
Source: USD-Adjusted Price date from Bloomberg, Chart and Colour Scheme from Scotia Mining Sales

I don't own any of these stocks at the moment, but have done well in the past with Franco-Nevada, a relatively safe way to play gold.  B2Gold (one of the favorites of the IKN Blog) looks interesting.  On the flip side, while I've traded Pretium in the past before it started mining, I wouldn't touch it now with a 10 foot pole because there is way too much risk that lower than expected gold grades are going to persist.  If gold and silver do break out, a good way to play it is to buy producers with relatively high cash costs because that provides exponential margin growth when precious metals prices move.  While I'm not a huge fan of Kinross because of the baggage it carries from bad acquisitions, that stock does typically have high leverage to gold prices and can soar in a positive gold environment.  In the silver space, Endeavour Silver has fairly high cash costs and greatly benefits from higher silver prices.

No meme in this post, but I do have a joke.  What do you say when you drop a gold bar on your toes?  Au!!!

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