what happened
Shares of Try silver (NYSE: EXK) fell to 12% in the first 90 minutes of trading on January 8. Silvercorp Metals (NYSEMKT: SVM), Coeur Mining (NYSE: CDE), en Hecla Mining (NYSE: HL) all dropped by about 10%. At about 11:30 a.m. EST, all four precious metal miners were still holding on to material losses. There is a simple answer to the decline here and a more complicated answer.
Approximately
Miners Endeavor, Silvercorp, Coeur and Hecla all have one thing in common: they have a relatively heavy exposure to silver. It helps from the highest level to explain the decline in stock prices here, as silver fell sharply in early trading today. Gold has also fallen, but the price of silver tends to be more volatile, and this is again seen with silver falling more than gold. It therefore makes perfect sense that this quartet of silver-heavy miners would fall into disfavor with investors.
Image Source: Getty Images.
However, there is a bit more to think about here when looking at the space of precious metals. Gold and silver, for example, are often considered safe havens. Basically, investors flock to them when the time is right. This is part of the reason why both metals have risen so strongly over the past year or so, as they declined with the market during the early 2020 bear market. It should be noted that silver has experienced the more important price fluctuations. But market sentiment is changing in some important ways.
Bad news, for example, is currently good news, as investors’ relatively weak job numbers coupled with a new government are preparing to take the reins in Washington, DC. The expectation seems to be that additional stimulus will come into play, which will help keep the US economy strong. There is therefore less need for a safe haven.
Meanwhile, the yields of the bonds have become higher. Securities and precious metals usually compete for the safe haven role. Bonds often get the nod because they generate revenue while gold and silver do not. However, with bond yields near painful lows over the past few years, some investors have opted for gold and silver. But as bond yields rise, so does the loss of opportunity of owning precious metals (without raising interest). Again, lose silver and gold.
New in this story is the role of digital currencies like bitcoin. This particular option has recently been at a tremendous price level and is reaching its highest highs. Investors are increasingly looking at digital currencies as an alternative to older secure port assets. And with the price of bitcoin lately for decidedly upbeat reasons, it would not be shocking to think that investors in gold and silver alliances would switch.
EXK data by YCharts
It is difficult for precious metals and precious metals mining to overcome major shifts like these. In fact, Endeavor Silver, which reported strong manufacturing results on Jan. 7, saw three Wall Street analysts raise their price targets for the stock today. This will normally put investors in a positive mood, but with the dynamics mentioned above changing at the same time, it did not happen this time.
Now what
Long-term investors should probably not try to give the up and down time of silver and gold time. It is a better idea to look at these metals and the companies that exploit them, such as Endeavor, Silvercorp, Coeur and Hecla, as diversifying assets. That said, after such a long series of upward gains for precious metals and the headwinds that are starting to attract investors’ attention, those looking for safe haven may stray on the side of the warning and keep money at the moment. Gold and silver are already volatile, but after huge gains after the 2020 bear market, even more pronounced ups and downs may be the norm as the major changes in the world take shape.