Last time we took a detailed look at silver we suggested the silver price would be in for some serious upside this year if the coronavirus got out of control. At the time we noted how increased risks in the Middle East had pushed silver up to $18.61, but we also said that we could see a scenario where silver could reach the $48/oz it hit back in April 2011.
In 2009-2011 central banks around the world were pumping liquidity into the financial system in the wake of the collapse of Lehman Brothers. This had the effect of driving precious metals prices to record highs in the case of gold, and silver saw a fourfold increase. Admittedly, this was over a two year period, but we have not seen such activity in the silver price until recently.
In our January analysis we stated that we’d see silver as more interesting if the price was able to sustain itself over $18. This has been a key price level for spot silver ever since, with the price tending to remain at just under $18/oz.
Sustained interest in silver really only picked up at the start of July, and we needed to see a convincingly stable upward shift north of $18.50. Silver started to do this from around 19 July and we saw a strong move develop above $20. The market now seems to feel silver should be priced at around $23. It is being driven very much by fears over the impact of COVID-19 on the global economy, especially the US economy, and the decline in the USD.
We don’t see many of these issues going away soon, leading to potential further upside in the silver price. Gold is trading at record highs, unlike silver, which in the view of many traders makes gold already expensive. We’ve seen gold ramping up over the last few months having dropped under $1500/oz in March at the height of the spread of the coronavirus.
That’s not to say that gold hasn’t got further to go – some market commentators are now talking about $3000 gold, although that seems far-fetched at the moment.
Silver on the other hand is still some way off the $48 level. We can’t see a scenario where gold will continue to rise and silver won’t.
Silver’s evolution may take weeks or months to develop, but there does seem to be a trend here now. There are a number of ways investors can access silver price dynamics.
Most brokers will quote a price on silver futures which traders can access, for example via a financial spread betting or CFD trading account. These are better for short term trades as they carry with them overnight financing fees in most instances.
A good alternative is silver ETFs, many of which are now based on physical silver held in bullion vaults, but which can be traded like shares. WisdomTree has three silver ETFs listed in London, including WisdomTree Silver (LSE:SLVR) and two other versions which offer x2 and x3 leverage on silver price movements. It also has a larger, physical silver ETF with $1.76bn in it (LSE:PHAG).
UBS and Swisscanto also offer silver bullion ETFs in Switzerland. UBS, for example, has a Swiss-listed silver ETF with $155m in assets under management.
Some investors will also be looking at mining companies which have productive silver mines. Most of the bigger miners have diversified operations that include both gold and silver mines. Hence, Fresnillo (LSE:FRES) and Polymetal (LSE:POLY) are both large silver and gold producers but don’t represent pure silver plays (Polymetal is also trading at a five year high, which may limit its upside).
Investors can hunt for miners with a more focused silver portfolio and we will be looking at these more closely in the near future. Take a look at the Global X Silver Miners ETF (NYSE:SIL) and you will see a fair few pure silver plays. The ETF itself is already up over 40% on the year. Among the key constituents are Wheaton Precious Metals Corp (NYSE:WPM) and Pan American Silver Corp (NASDAQ:PAAS).