- Silver hits highest mark since November 2012
- Precious metal still stands 30% off its all-time high of 2011
- Gold-to-silver price ratio stands at 80, compared to long-term average of 65
- Shares in Fresnillo and Hochschild Mining trade no higher now than they did in 2009, when silver was less than half its current levels
“Gold may stand at a new all-time high, but silver is also moving sharply higher, and it is on the cusp of going above $34 an ounce for the first time since 2012,” says AJ Bell investment director Russ Mould. “This could yet fire the imagination of stock market investors, too, as shares in FTSE 100 silver miner Fresnillo and FTSE 250 counterpart Hochschild Mining trade no higher now than they did in 2009, when silver was less than half its current price.
Source: LSEG Refinitiv data
“A surge in precious metals does not necessarily adhere to the script that equity markets are currently following, as they stick to the narrative that inflation will cool, economies will enjoy a soft landing (assuming they suffer a landing at all) and that central banks will be able to cut interest rates and ensure that prices do not run too hot, and the economy does not run too cold.
“For the moment, inflation is cooling, economies are growing and rate cuts from central banks massively outnumber steps to tighten monetary policy (by 150 to 23 this year, according to the website CBRates), but some investors are looking for haven assets all the same. Perhaps they continue to fret over levels of government debt, especially in the US where neither presidential candidate is making much effort to address the issue of the ballooning deficit, which continues to surge.
Source: FRED - St. Louis Federal Reserve database, Congressional Budget Office, LSEG Refinitiv data
“Even if Trump and Harris are trying to ignore the issue, fixed income investors are not. The yield on the benchmark 10-year US Treasury is higher now than it was on the day of the US Federal Reserve’s first rate cut of this cycle.
Source: LSEG Refinitiv data
“That was not in the script, and it may reflect concerns about America’s fiscal position, which is expected to deteriorate further even before the policies proposed by Harris or Trump are implemented.
Source: FRED - St. Louis Federal Reserve database, Congressional Budget Office, LSEG Refinitiv data
“Such worries may help to explain why gold stands at a new, all-time high above $2,700 an ounce.
“In this context silver may catch the eye of contrarians since it trades 30% below the $48-an-ounce peak reached in 2011 (and before that in 1980, when the Bunker Hunt brothers’ attempts to corner the silver market came badly unstuck).
Source: LSEG Refinitiv data
“In addition, the gold price currently trades at nearly 80 times that of silver, whereas the long-term average is a multiple nearer 65 times. That may be enough to persuade some investors and traders that silver is ‘cheap’ relative to gold.
Source: LSEG Refinitiv data
“Sceptics will be less interested. They will argue that physical silver offers no yield and comes with a cost of ownership, such as storage and insurance, which means there is a negative carry relative to cash. They will add that the lack of yield means valuing the metal is nigh-on impossible and thus argue its intrinsic value can only be measured relative to the all-in sustained cost (AISC) of producing it. In the case of Fresnillo, the world’s largest silver miner, this was $23 an ounce across the 28.2 million ounces of the metal mined in Mexico in the first half of 2024.
“Bulls will counter that this means silver miners’ profits could start to surge, all other things being equal, although input cost inflation remains a challenge, since Fresnillo’s first-half results statement flagged increased haulage distances, higher diesel costs, deeper mines, higher maintenance expenditure, plus currency movements as trends to note.
“A proposed ban on new open-pit mining permits in its home country of Mexico is a further dampener to sentiment. Even so, patient contrarians could be tempted to take a second look, given the apparent disconnect between the share price and the silver price.
Source: LSEG Refinitiv data
“Shares in FTSE 250 index member Hochschild Mining are showing a little more life, perhaps due to how its operations are based in Peru and Brazil and an AISC that is lower than Fresnillo’s, at $18.20 an ounce, based on the 12.7 million ounces equivalent of silver produced in the first six months of 2024.
Source: LSEG Refinitiv data
“Both miners will need silver to keep on shining if their share prices are to make further progress and that might not happen if equity markets’ dream scenario of cooler inflation, steady economic growth and lower interest rates pans out as hoped.
“Equally, any diversion from that path, and any sense that central banks are not fully in control, or that they may chance their arm with inflation as they keep interest rates low to try and help governments manage their debts and interest bills, could yet give silver – and gold – a further boost.”
