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StockBeat: The Craze for Silver, the Metal Formerly Known as 'Precious'

Stock MarketsFeb 01, 2021 05:46AM ET
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© Reuters.

By Geoffrey Smith 

Investing.com -- Silver mining stocks were, inevitably, the standout winners in European markets on Monday morning after a slew of reports highlighting a surge in interest for the metal by retail traders, accompanied by a surge of attention in social media such as Reddit chat boards.

By mid-morning in London, the three biggest silver miners listed in London were all rocketing higher: Fresnillo (LON:FRES) led with a gain of 17%, with Hochschild Mining  (LON:HOCM) gaining 16% and Russian-focused Polymetal (LON:POLYP) up a more modest 7.0%.

Europe-listed depositary receipts of U.S.-listed miners were also posting sharp gains, with Pan American Silver (NASDAQ:PAAS) up 15% and First Majestic Silver Corp (NYSE:AG) up 33%.

The arguments for higher silver prices seem solid enough at first glance: silver is, for one thing, mainly an industrial metal rather than a precious one, and the rest of the base metals complex – a rough proxy for global industrial production – is in rude health right now: aluminum, dogged for years by global oversupply, is up by one-third from its April; copper is up by two-thirds and close to an eight-year high; nickel and tin are both on course to set seven-year highs.

True, iron ore futures, the quintessential industrial demand proxy, are off over 10% from their recent high as China’s manufacturing boom shows signs of cooling off, but  most of silver’s industrial demand comes from the solar and electronics industries, two sectors that – for now at least – are enjoying a particularly bright outlook.

The boom in metals reflect a renaissance for global manufacturing, spurred by the shift in spending to goods from services by a population locked down at home, along with – in some cases – tight mine supply that is the result of cyclical factors and – in others – production difficulties as a result of Covid-19 last year. The most important mines of Fresnillo and Hochschild are in Mexico and Peru, respectively, both of which have been ravaged by the virus. And, of course, all of these dollar-denominated prices reflect the deliberate cheapening of the dollar by the U.S. government and central bank.

What it doesn’t reflect is the kind of skewed long-short positioning exploited so spectacularly last week in a handful of relatively small stocks. According to CFTC data, net speculative long positioning in silver is at a relatively high level on a historic basis, suggesting that long silver is already a trade that is pretty crowded.

Much of the money that flowed into silver over the last year was driven, at least in part, by its association with gold and its reputation as a precious metal that would make it a hedge against inflation. And it’s true that the surge in gold last year left silver looking undervalued by comparison. At one point last year, it took over 127 ounces of silver to buy an ounce of gold – an all-time record high. But with gold levelling out in recent weeks, and with silver spiking, that ratio is back down to 63, more or less in line with its average over the last 35 years.

One final point worth considering is that silver has often in the past been a late-cycle asset, neglected while other, sexier trades catch the eye. Its rallies often owe more to perceptions of relative cheapness rather than underlying value.  Too often, it is a classic value trap. It isn’t called “the metal formerly known as Precious” for nothing. The fundamentals for the metal look better than they have done for some time, but rocket fuel for a trip to the moon - they are not

StockBeat: The Craze for Silver, the Metal Formerly Known as 'Precious'
 

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Comments (19)
Jay Lennox
Jay Lennox Feb 15, 2021 2:29PM ET
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silver was "formerly known as precious" what a bs statement. silver is highly valuable.
Nicholas Graves
Nicholas Graves Feb 01, 2021 6:39PM ET
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it was with great pleasure I told a u.s. vet his money was no longer valuable ********the u.s. dollar they are passing out to everyone & FYI the government doesn't give away anything valuable.
Phil Kimmel
Phil Kimmel Feb 01, 2021 2:26PM ET
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For those who say the dollar is trash, ask yourself this, “What’s in your wallet?”
Knate Biro
Knate Biro Feb 01, 2021 8:56AM ET
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This is a lie. The WSB crew is 100% not on silver. Hedge funds are huge owners of silver. They are pushing the price to cover short losses.
Nagy Dániel
Nagy Dániel Feb 01, 2021 8:47AM ET
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FAKE NEWS to get attention from Gme. no one cares about capital owned silver, this fear doubt uncertainty msdia campaign wont work. HOLD
The Chad Bull
The Chad Bull Feb 01, 2021 8:19AM ET
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Silver has actual value. The dollar is fiat trash backed by pur corrupt federal reserve private banking system
RF RF
RF RF Feb 01, 2021 7:32AM ET
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🥈🚀
perplexed76 .
perplexed76 . Feb 01, 2021 7:30AM ET
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buying silver at its peak, greatest trading idea ever
Pin ga
Pin ga Feb 01, 2021 7:30AM ET
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30 is farrrrrrrrrr from the peak
The Chad Bull
The Chad Bull Feb 01, 2021 7:30AM ET
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It’s heading to $100 and you will be sad you missed out
Feb 01, 2021 6:43AM ET
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Literally was informed that news articles like this would come out today...so yea thanks for the distraction but its BANG time (BB, AMC, NOK, GME)
Ben Dover
Ben Dover Feb 01, 2021 6:42AM ET
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Thisbis the new age of pnd. People are being played. The same people will end up accusing the system as rigged.
 
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