For consumers and industrial businesses alike, silver is a critical component and prized precious metal. It is an efficient electric and thermal conductor, and it is highly valued for its electrical applications. The coming wave of electrification across broad swathes of the global economy is likely to continue pushing silver prices higher as demand picks up. This is not a trend that is going away any time soon.
Silver investors love it as well because of its behaviour as a commodity and its investment characteristics. It has a similar perception as a safe-haven metal like gold, making it a solid hedge against inflation and economic bumps that might shake other assets like stocks.
While investors might love silver, they almost always choose mining companies exploring, producing, or refining the metal. Whether it’s a big producer like First Majestic Silver or an exciting new exploration company like Tier One Silver, there are a few options for investors looking for exposure to silver in this trending market.
First Majestic Silver (TSX:FR) (NYSE:AG)
2020 was a tricky year for this popular Canadian miner, but silver generated 60% of the company’s revenue in 2020, making it a prime choice for silver investors. The company’s projects are focused in Mexico, with three mines operating in the country. It also has several other silver mines under development.
The company is not shy about its ambitions to become the largest silver producer in the world, and these mines are sure to take it one step closer to its goal. While spot silver may rise and fall with a more macroeconomic dynamic in play, stocks like this one are able to outperform silver prices. The company’s returns are based on their production and progress. Therefore it is up to investors to decide whether the Mexican mines and new mines under construction are setting the company up for long-term success.
The development of the new projects will likely be the catalyst for a run higher on the chart. Any sign that the company can increase its production while reducing mining costs either at existing sites or the new ones will likely give it a boost to outperform the precious metal.
It should also be noted that a rising tide can lift all boats, and that the likely steady climb for silver over the coming decade could provide a strong tailwind for the company regardless of changes to operations or how closely it hews to its new development plans.
The RSI reading on First Majestic recently hit 28.7, a new low and a possible indication that it is oversold. Traders will be looking for any momentum higher, especially if recently heavy selling is in the process of exhausting itself. Entry point opportunities abound for silver stocks as averaging out the cost of these shares is a long-term choice for the inevitable green revolution coming down the pipeline right now.
Tier One Silver (TSXV:TSLV)
We move from Mexico to Peru next, with an exploration company showing promising progress on its multiple projects in Peru. Tier One’s strengths lie in the abilities of the management and technical teams, with a strong record of cap raises, discovery, and monetization of exploration successes. The company’s flagship project Curibaya has received a lot of attention globally lately, with the first drill program commencing recently, but the company’s impressive portfolio of projects also includes:
- Hurricane Silver
- Coastal Batholith
Its recent expansion of the land position at Curibaya now includes an extension of the mineralized system. The expansion gives Tier One 50% more land at the site, taking it from 11,000 hectares to 16,800 hectares.
Spun out from Auryn Resources in October 2020, the company began trading on the TSX Venture Exchange on June 9, 2021, under the ticker TSLV on the TSX Venture and TSLVF on the OTC Markets. The company’s exploration plans and its strong ties with local communities, and commitment to environmental, social, and governance (ESG) principles are what has made it so attractive for investors. The company has also applied for listing on the OTCQB, to expand options for US investors and broaden the investor base.
The upside potential for an exploration company like Tier One is huge. While producers and established companies might be competing to see who can squeeze more profit from ever-changing margins, explorers have one important mission: get the discovery. Any progress on any of their projects or news of discovery would be massive for investors, and considering the price right now, this might be the silver value play for 2021.
Good Times Ahead
More than half of silver’s demand comes from the industrial sector. President Joe Biden’s recent Bipartisan Infrastructure Deal announcement has brought renewed attention to this particular area, as demand is likely to soar for silver imports to the US. Anything needed for EVs or EV infrastructure, electrification of power grids, charging station networks, and even clean energy production could see huge growth in 2021 and beyond.
The World Silver Survey published last year made it clear that silver demand is ready for takeoff, and it has already begun to move. 2020 investor demand for silver bars and coins was up 8% YoY on “a growing appetite for safe-haven assets” as well as “the strength of the gold price”. While demand suffered due to COVID-19, with industrial demand dropping 5%, growth is expected to continue in 2021 that could more than offset any shrinking demand from the previous year.
2021 could see the silver sector jump 26% to 252.8 million ounces, the highest level since 2015. Industrial demand should pick back up as well, with 8% growth estimated. The World Silver Survey predicted a silver price of US$32 by the end of 2021, but other analysts are more optimistic. CPM Group managing partner Jeffrey Christian says his firm “wouldn’t be surprised to see the price go back up and test US$30 or US$32 over the next several months”. A strong push to that level so early could mean a break through any technical resistance sitting at that level and a run higher.
How High Could it Go?
Christian thinks the fundamentals are there to climb continuously through 2021: “At some point, we think the price of silver will rise and rise sharp. That increase we expect to coincide with the next financial and economic crisis”.
All-time highs of nearly US$50 may not be out of the question. Investors consider silver to be an amplified version of gold that can hit multiples of the yellow metals price due to its wide use of applications and ability to provide a stable alternative to a shifting gold market. The resource space is often cyclical, meaning prices will inevitably rise and fall, and while timing the market is often a fool’s errand, the confluence of events approaching this year and next gives investors ample reason to believe the white metal could be primed for its next leg up.
Investors looking for exposure will turn to silver, silver stocks, and ETFs as they look to capitalize on this trend.