After months of the silver price lagging behind the gold market, the two metals have switched roles in recent weeks.
As we pointed out in a previous article, the fundamentals pointed toward a breakout for the silver price that would exceed the performance of gold. This reversal of fortunes was not surprising, but the reasons behind it weren't magic, either. Simply put, important indicators were showing that silver was historically undervalued relative to its cousin gold.
One thing to always keep in mind is that markets are driven by human behavior—what classical economist Adam Smith called the "invisible hand." Just because silver was cheap compared to gold doesn't necessarily mean the markets will move into balance. It's a result of flesh-and-blood market participants taking note of the trend and reacting to it. In large measure, the dynamics we're seeing for the silver price are the result of traders and investors noticing the imbalance between the two metals' prices. This out-of-whack ratio where gold was more expensive than silver by a ratio of 80:1 (see chart, above) was widely publicized.
Spot silver was trading at $15.10/oz at the beginning of April. Since that time, prices have rallied better than 8% to settle at $16.35/oz. Over that same period, gold has gained roughly 1.6% by comparison. The yellow metal began to shed more significant gains around the time that silver took off, falling from its yearly highs well above $1,250/oz.
Silver Mining Surge
In addition to not sleeping on silver, traders also began pouring their money into the various silver mining companies as a high-risk, high-reward play on the metal's rally. When the silver market awoke from its dormant period, the mining stocks woke up along with it.
Just like the spot markets, the most popular silver mining stocks saw robust demand even as the gold market took a backseat and traded sideways. Friday saw strong surges for the following silver stocks: AG, SLW, EXK, FSM, PAAS, and CDE. We take a look at how these companies followed up on Monday below.
- First Majestic Silver Corp. (AG) was up significantly on Monday, advancing more than 3% in morning trading. AG has been among the best-performers in this sector, gaining 13.5% over the last three trading sessions after previously notching a one-year high.
- Silver Wheaton Corp. (SLW) pulled back from Friday's rally, losing 1.1% early on Monday. It remains one of the larger primary silver miners, however, with a share price of about $17 and a market cap above $7.5 billion.
- Endeavour Silver Corp. (EXK) added another 3% Monday morning as it continues to be one of the great value plays in the sector. Along with PAAS (see below), it is being touted as one of the hottest Canadian stocks.
- Fortuna Silver Mines Inc. (FSM) was down 0.8% early in Monday's session, but the company's stock is still approaching their 2-year high of $5/share.
- Pan American Silver Corp. (PAAS) gained 1.1% on Monday, building upon Friday's jump of 4.9%. This continued success came despite the company's mine in Argentina stopping production due to a labor dispute.
- Coeuer Mining Inc. (CDE), another rising player in the industry, was up 0.75% on Monday. The company's stock surged more than 45% during March, helping boost its market cap above the $1-billion mark.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.