Making the most of declining junior miners
Miners are underperforming gold despite getting support from the stock market.
While silver has a variety of industrial uses, the metal’s price is still heavily influenced by its use as a value store, similar to gold, industry analysts at Moody’s say.
Based on this view, the credit ratings firm has set a price sensitivity range of $17-$21/oz for silver, which will be used to evaluate risk when analyzing credit conditions of mining companies in the sector.
Analysts are expecting silver spot prices to remain at or above the top end of this new range through the first half of 2021, based on recent spot silver prices of more than $26/oz. Silver miners cannot rely on those high prices persisting, though, because silver has averaged $18/oz — close to the $19/oz midpoint of the price sensitivity range — since 2013, and closer to the low end of the range since 2016 ($17.40/oz).
By noon EST on Friday, spot silver was up 1.2% to 27.32/oz. The metal has gained 2.4% since the start of 2021.
Silver is used in a range of industrial applications such as electronics and solar panels, so its price can be affected by supply and demand fundamentals.
Yet because of its long history as a medium of exchange and store of value, similar to gold, silver’s price will most often move in response to global macroeconomic factors, market sentiment and speculation, Moody’s says, adding that price is also volatile because of silver’s smaller, less liquid market, relative to other commodities.
However, some in the industry believe that silver could outshine gold this year, with demand for the precious metal hitting an 8-year high.
The new price sensitivity range, most of which sits above the five-year average silver price of $17.40/oz, reflects the firm’s view that a global economic recovery will be uneven by country, region and sector; recovery will be incomplete in 2021; and that continued political and geopolitical tensions will add to economic uncertainty.
In addition, the silver price has shown a correlation to interest rates, analysts expect real interest rates across maturities to remain low over the next several years, with central banks continuing to support market liquidity and financial conditions well into 2021.
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Comments
Robert
Thank-you for possibly the most mealy-mouthed analysis of silver’s price potential ever.