The iShares Silver Trust (NYSEARCA: SLV) exchange-traded fund has underperformed the SPDR Gold Shares (NYSEARCA: GLD) over the past year, but is it time for the situation to reverse?
Silver mining stocks listed on major U.S. exchanges include Newmont Corp. (NYSE: NEM), Wheaton Precious Metals Corp. (NYSE: WPM), Compañía de Minas Buenaventura S.A.A. (NYSE: BVN), Coeur Mining (NYSE: CDE), Fortuna Silver Mines Inc. (NYSE: FSM), Hecla Mining Co. (NYSE: HL), First Majestic Silver Corp. (NYSE: AG) and Pan American Silver Corp. (NYSE: PAAS).
Some of those companies also have operations in the area of gold mining, as well as other metals.
As a group, gold and silver miners have lagged behind most others.
Equity market, Bitcoin rallies dented precious metals
There are a couple of culprits behind the underperformance. First, as equity markets rallied in recent months, precious metals lost their glitter as hedges against a downturn.
More recently, as the Securities and Exchange Commission gave the nod to Bitcoin ETFs, money has been flowing away from precious metals and toward cryptocurrencies.
The Bitcoin ETFs have been marketed as an alternative to gold as a way to store value due to its scarcity, relative to other assets.
But even if gold, the more traditional precious metal hedge slumps, is silver about to rotate into leadership?
Jonathan Rose, co-founder and CEO of Genesis Gold Group, a Los Angeles company that guides investors toward gold and silver as a means of wealth preservation.
Investors seek gold and silver amid stock-market volatility
Rose told MarketBeat that as economic pressures drive down equity markets and the dollar, precious metals have historically shown an inverse correlation.
“When investors are concerned, they go to the higher ground of gold and silver,” he said. “Today, silver in particular is interesting because of the buzz around its industrial uses. We expect silver in 2024 to have one of its highest trading volumes in history.”
In the past month, the SLV ETF has outpaced the GLD ETF.
Industrial usage currently favors the performance of silver, as the white metal is a component in solar panels, electronics, water purification systems, cars and other items. As industrial stocks as a group rally on the potential for lower interest rates, and on fewer supply-chain hassles, that bodes well for silver.
Two of the fastest-growing industries, green energy and medical technologies, rely on silver, Rose said.
“Industrial demand for silver doubled last year and new advancements requiring the precious metal are materializing every week,” he added. “This makes silver particularly attractive to investors who want to be able to liquefy assets quickly if necessary.”
Rose cautions that investing in silver stocks comes with the same risk and reward potential as any other stocks.
Owning the physical commodities is 'different ballgame'
“Owning physical precious metals is a different ballgame that hedges against those risks. As any good analyst will admit, a diverse portfolio is a happy portfolio,” he said.
For investors who prefer using stocks rather than holding the hard assets or commodities themselves, many of the precious metals stocks are issued by small companies, which can add risk and reduce volatility.
Silver often exhibits higher volatility than gold, offering greater potential for short-term gains, which could contribute to silver stocks rallying in 2024.
In addition, silver tends to be more affordable for retail investors, potentially attracting a broader investor base and increasing liquidity in silver stocks.
Ratio signals silver may be ready to rally
For example, the SPDR Gold Shares chart shows the ETF trading at around $186, while the iShares Silver Trust chart shows a price between $21 and $22.
Furthermore, the gold-to-silver ratio, which measures how many ounces of silver it takes to buy one ounce of gold, can influence investment decisions on an institutional level.
The current gold-to-silver ratio is 88.959, higher than the historical average.
When this ratio is high, indicating silver is undervalued relative to gold, investors may pivot towards silver stocks, driving up demand.