What happened
Precious metal stock miner America gold and silver (NYSEMKT: USAS) increased to 13% on July 20. He was closely followed by Endeavor Silver (NYSE: EXK), which advanced slightly less than 13% at its peak, and Fortuna Silver (NYSE: FSM), which rose approximately 10%. At 2:30 pm EST, all three were still taller at between 10% and 13%. There was no major news from any of the companies, but there was some notable news on the silver front.
And that
Silver has lagged behind gold’s performance in recent years, prompting many miners to shift more to the yellow metal while minimizing their silver efforts. The reason for this is found in the gold-silver ratio, which tells you how much silver it takes to buy an ounce of gold. The number is currently around 90, but over time it has averaged somewhat closer to 50, with the current average of 20 years hovering around 65. Essentially, silver has generally lagged behind gold in recent years, expanding the gap of the gold-silver ratio and making it more profitable for miners to dig the so-called barbaric metal.
Image source: Getty Images.
That said, silver has been on an impressive run since mid-March, gaining approximately 50%, using exchange-traded funds. iShares Silver Trust as a proxy for the metal, compared to a gold gain of about 20%, using IShares Gold Shares as a proxy. This follows a drop in the silver price earlier in the year that pushed the gold-silver ratio above 120. The current recovery has been very impressive at more than just the percentage gain. Today, silver topped $ 20 an ounce for the first time since 2016, with a remarkable daily gain of over 2%. In a significant turn of events, silver is an increasingly desirable precious metal to have in a miner’s wallet.
Therefore, it should come as no surprise to see that Fortuna Silver, Endeavor Silver, and Americas Gold and Silver shares have been impressively priced alongside silver. Today’s price increase is just normal for the course in this environment. In fact, Americas Gold and Silver has been emphasizing that it is a “silver option” gold miner. In a recent investor presentation, the miner noted that he has “several development scenarios available to increase silver production by 2022.”
SLV data by YCharts.
Meanwhile, Fortuna and Endeavor recently released second quarter production results that were quite sad. That was largely due to the impact of COVID-19, which closed mining in key regions, and not to specific company events. The second-quarter financial results will likely be a pretty rough read, and the disruptions make it difficult to assess how well these miners really are. However, Endeavor also highlighted positive exploration results at two mines, which produce gold and, in particular, silver. Meanwhile, Fortuna’s output is heavily weighted towards silver. To put a number to that, in the first quarter Fortuna produced approximately 1.8 million ounces of silver and around 9,630 ounces of gold. Both are important metals, of course, but the sharp rise in the price of silver should have a very positive impact on your financial results.
Now what
Today’s advancements in the share price at Fortuna Silver, Endeavor Silver, and Americas Gold and Silver are quite impressive. However, the respective stock runs from the March fund are even more noticeable. But the recent performance also highlights an important fact that any investor looking for a metal stock should keep in mind: These are commodity-linked companies prone to rapid and dramatic price changes. That is true both up and down. Smaller miners, including the three companies here, tend to be particularly sensitive to the emotional shifts that push precious metal prices up and down.
In the end, despite often exciting price movements, gold and silver are probably best viewed as diversifying assets, with most investors preferring to place only a small percentage of their portfolio in investments linked to precious metals. And, generally speaking, the largest and most diversified options, particularly transmission companies, are probably a better option than any of these three for long-term investors. That doesn’t suggest they are bad companies, they just require a lot more preliminary work than other options in space.
