Silver… The Next Break Out Metal?

Featured image: Stockpiles of gold/silver ore at the Vangold Mining El Pinguico project in Mexico

 

 

A special feature from Tim Strong - Kangari Consulting

Many of you will have been watching the gold price slowly climb with interest in the past few months, but have you also been looking into silver?

I was first directed to silver when reading an article about the US Mint selling out of American Eagle Silver coins. They wrote to bullion dealers in March stating:

‘Our rate of sale in just the first part of March exceeds 300% of what was sold last month. West Point is working diligently to produce additional inventory and once additional inventory is produced, we will again begin allocations.’

This was promptly followed by the Australian Mint who also suspended silver bullion sales.

What has driven this excess demand for silver?

Numerous factors have come together to create this perfect storm; A drop in silver price of 30% in March (a ten year low), the COVID-19 pandemic and fears of recession have all fueled physical silver (and gold) sales. Investors, and either regular households, tend to favor holding precious metals in their physical form when there is considerable financial certainty in the markets – as has occurred in Q1 of this year.

Silver price usually mimics gold price, if gold goes up, so does silver. However, the current gold/silver ratio stands at 110, the average ration since the 1980’s has been 65. This suggests that silver is lagging behind gold in terms of price and has the potential to have a spike if ratios were to be corrected.

Sprott Portfolio Manager, Maria Smirnova has also picked up on this surge of physical silver demand. She notes that 2019 saw moderate growth in demand of 4.7% whereas this year’s prediction is close to 24%. In addition, she summarizes that silver will still be a safe haven for investors avoiding the markets and protecting themselves against currency devaluations.

So, it seems like a demand for silver will continue to rise, what has happened to the supply?

Silver is produced around the globe, typically in epithermal vein systems or as a byproduct in porphyries and high sulphidation gold systems. By far the most important producing country of silver at this time is Mexico – with 196.6Moz followed by Peru with 144.9Moz. Both countries have faced country wide lockdowns in the wake of COVID-19 and as such all mining has ceased, together they represent almost 40% of global supply. Bolivia also makes the top 10 list of producers and is also in lockdown.

Even in countries that have not been subjected to a ‘mining lockdown’ such as the USA, Chile and Poland, silver production has been decreased as many sites only have essential staff employed at this moment to enable virus containment.

In addition to the reduction of production at key mine sites, the has been a decrease in the manufacturing sector which uses silver in their products. This is likely to continue for as long as the virus remains.

One company that has some silver credits but is continuing work is Vangold Mining (TSXV:VGLD). Vangold has recently been bulk sampling their stockpiles at the Il Pinguico project in Guanajuato, Mexico. Vangold CEO James Anderson caught up with Spotlight Mining over Skype last week to give his update on progress. The video can be seen here: