Silver futures for September delivery closed at $27.025 an ounce on Aug 27, clocking a 49% year-to-date gain and outshining gold’s year-to-date return of 26.9%. Early this August, silver had trended past $28 per ounce — a level not seen since 2013. Market uncertainty resulting from the COVID-19 pandemic and the long-standing U.S-China tensions have renewed interest in silver as an investment vehicle. Low interest rates, continued liquidity boosts by central banks and recovery in industrial demand have worked in favor of the white metal.
Silver’s Safe-Haven Appeal Going Strong
Tensions between the United States and China, and the coronavirus pandemic have been spurring safe-haven demand for gold and silver. In the first half of the year, silver witnessed a 10% increase in investment demand. Impressive growth was witnessed in silver-backed exchange-traded products (ETPs), which have posted successive all-time highs this year, together with solid silver coin and bar investment. As of Jun 30, 2020, global holdings reached an all-time high of 925 million ounces (Moz). The ETP growth was 196 Moz in the first half of 2020, which surpassed the highest annual inflow of 149 Moz in 2009.
Pickup in Industrial Activity to Fuel Silver Demand
Industrial applications account for 60% of the global silver consumption. Per the Institute for Supply Management, the U.S. Manufacturing Purchasing Managers’ Index (PMI) came in at 54.2% in July after a reading of 52.6% in June. After remaining below 50 (which indicates contraction) from March to May due to the damages caused by the coronavirus pandemic, the PMI crossed the 50 mark in June. Considering the fact that the manufacturing sector accounts for 11% of the U.S. economy, this raises hopes of an economic recovery.
Meanwhile in China, the Official NBS Manufacturing PMI was 51.1 in July 2020, up from 50.9 in June — maintaining the streak of five consecutive months of increase in factory activity. This shows a major recovery from the all-time low PMI reading of 35.7 in February, which can be attributed to the coronavirus crisis-induced lockdown. China is gradually moving out of the crisis and working toward full normalization of economic activities. Silver plays a vital role in the production of solar cells that produce electricity. China is the largest photovoltaic (PV) silver market globally. The country is also the world’s largest auto market. With more than 36 million ounces of silver utilized annually in motor vehicles, a pick-up in manufacturing activity will translate to silver demand.
The Eurozone Manufacturing PMI came in at 51.7 in August after July’s 51.8, owing to the easing of the pandemic-induced lockdown restrictions.
Silver Supply at Risk
Mexico, the world’s largest silver producer, churns out nearly 23% of global production of the white metal. After mandated shutdowns due to the pandemic, the country’s mining sector has resumed operations. Peru, which trails Mexico in silver production, has also allowed miners to resume production. However, the resurgence of coronavirus cases might result in the closure of some mines, putting supply at risk. The Silver Institute now predicts the global silver mine production to dip 7% in 2020.
What to Expect This Year
Global efforts to restart and revive economies following the coronavirus pandemic-induced lockdowns are anticipated to sustain silver demand this year. Demand from the electrical and electronics sector will account for the bulk of gains. Silver utilization in the automotive industry is likely to register stellar growth, aided by vehicles’ rising sophistication and electrification. Silver use in 5G-infrastructure and upcoming intelligent electronics is also likely to fuel demand. The ongoing revolution in green technologies, driven by the exponential growth of new energy vehicles and investment in solar photovoltaic energy, will act as a key catalyst. Thus, the impending supply-demand balance will aid silver prices this year.
Industry Performance & Rank
So far this year, the Mining – Silver industry has gained 22.7%, outperforming the S&P 500’s growth of 8.1%. The industry falls under the broader Basic Materials sector, which inched up 0.1%.
The industry currently carries a Zacks Industry Rank #48, which places it at the top 19% of more than 250 Zacks industries. The group’s Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates bright prospects for the near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
We, thus, believe that the time is right for investors to add some silver stocks to their portfolio. We have employed the Zacks Screener to pick four Zacks Rank #2 (Buy) stocks which offer solid investment opportunities.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Our Top Picks in the Industry
Hecla Mining Company HL: The Zacks Consensus Estimate for fiscal 2020 earnings of this Coeur d’Alene, ID-based company suggests outstanding growth of 208% over the prior fiscal year. The company has a long-term estimated earnings growth rate of 1%.
Fortuna Silver Mines FSM: The Zacks Consensus Estimate for this Miraflores, Peru-based company’s 2020 earnings moved up 25% over the past 30 days.
Pan American Silver PAAS: The Zacks Consensus Estimate for the current-year earnings of this Vancouver, Canada-based company indicates year-over-year growth of 12.8%. The estimates have also moved up 5% in 30 days’ time. The stock has a trailing four-quarter earnings surprise of 66%, on average. The company has a long-term projected earnings growth rate of 14.4%.
Endeavour Silver Corp. EXK: The Zacks Consensus Estimate for this Vancouver, Canada-based company’s ongoing-year earnings calls for a year-over-year increase of a whopping 106%.
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