Gold has been on a hot streak this year, but silver, also known as the “poor man’s gold,” has been doing even better.
Although the spot price for gold has climbed 33 per cent to more than US$2,700 an ounce this year, spot silver has shot up about 45 per cent to nearly US$35 an ounce.
Some fund managers are now betting the white metal can keep rallying on the coattails of gold’s record prices despite occasional pullbacks on profit-taking.
Onno Rutten, vice-president of investment management and portfolio manager with Toronto-based Mackenzie Investments, says silver’s return can surpass gold’s because the former is a more volatile metal.
“When gold goes up, you expect silver to outperform gold,” says Mr. Rutten, who oversees Mackenzie Precious Metals Fund. “The reverse is true on the way down, where silver underperforms gold.”
He’s bullish on silver because of growing investor interest amid a climbing gold price and strong industrial demand for the white metal, particularly for solar panels to produce electricity.
The strong gold price has been supported by central bank purchases, particularly in Asia, and the U.S. Federal Reserve’s recent move to start cutting interest rates, he says.
Gold has been hitting record highs this year as investors have flocked to the safe-haven metal amid Middle East tensions and uncertainty around the U.S. election on Nov. 5.
But Mr. Rutten doesn’t have a target price for silver, noting that it’s “not as liquid as the gold market,” and certain parties have attempted to buy silver aggressively to boost its price.
Silver hit a record high of about US$50 an ounce in 1980 when the Hunt brothers of Texas tried to corner the market. It reached that level again in 2011 amid concerns about the global economy after the global financial crisis.
Mr. Rutten is playing the bull case for the metal through nine silver-focused holdings in his fund. Pure-play silver miners are rare.
Among them, Gatos Silver Inc. GATO-T is being acquired by First Majestic Silver Corp. AG-T, and SilverCrest Metals Inc. SIL-T is being taken over by Coeur Mining Inc. CDE-N.
Mackenzie Precious Metals Fund also holds Pan American Silver Corp. PAAS-T, a silver and gold miner that’s discovered a large deposit under one of its existing mines in Mexico, which could be one of the world’s larger silver-zinc mines in the future, he says. Another holding is Aya Gold & Silver Inc. AYA-T, which has a new silver mine in Morocco.
The fund also owns an exchange-traded fund, iShares Silver Trust SLV-A, which tracks the silver price. Bullion is less volatile than equities and “we always try to manage volatility,” he adds.
Maria Smirnova, chief investment officer and senior portfolio manager at Toronto-based Sprott Asset Management LP, is more bullish on silver now even though its price has been trending upward since late 2018.
Ms. Smirnova, who is also lead manager of Ninepoint Silver Equities Fund, points to silver’s duality as a precious and industrial metal.
“On the demand side, silver behaves like gold as it benefits from periods when interest rates are going down,” she says. “We are also seeing a lot of investment demand out of India and China.”
Industrial demand has been “growing at a fast clip recently because silver goes into a lot of electronics, such as electric cars and solar panels thanks to its high electrical conductivity,” she says.
But the supply of silver is tight, she says. “Supply is about 1 billion ounces a year, but demand is 1.2 billion ounces a year. So, there is a deficit of about 200 million ounces, or 20 per cent of supply.”
The problem is that there are not a lot of new silver mines coming online soon, she adds. “If we continue to see these deficits, we could see silver at US$50 an ounce and above.”
However, Ms. Smirnova says it’s frustrating that silver is not on Canada’s critical mineral list as the metal is required in the solar industry for the transition to renewable energy. The federal government offers a 30-per-cent tax credit to people investing in flow-through shares in mining companies focused on critical minerals, and including silver could help with new silver-mining exploration and development.
Ninepoint Silver Equities Fund’s top holdings include Gatos Silver, Pan American Silver, iShares Silver Trust, Endeavour Silver Corp. EDR-T, Mag Silver Corp. MAG-T and Vizsla Silver Corp. VZLA-A. Ms. Smirnova was unable to comment on specific holdings due to compliance restrictions.
Daniel Greenspan, senior analyst and resource team director at Toronto-based CIBC Asset Management Inc., says he has a positive outlook for gold and silver through the next 12 to 18 months, with silver outperforming gold over the next year or two.
“Our thesis for silver is that demand continues to grow from solar, and mine supply for silver is effectively flat,” says Mr. Greenspan, co-manager of CIBC Precious Metals Fund.
Like his peers, he watches the gold-to-silver ratio, a financial metric that divides the price of gold by the price of silver. It’s a key indicator of the relative value between gold and silver, with peaks in this ratio signalling that silver is undervalued.
That ratio has recently bounced around 80 to 1, “which is pretty much in line with the 10-year average,” he says, whereas the average ratio over the past 50 years has been 60 to 1.
Given the growing demand for silver from the solar industry, “maybe the ratio should be lower than it has been over the past 10 years,” and that implies a higher silver price, he says.
During the past decade, the lowest ratio was 64 to 1, which today would suggest a silver price in the low US$40 an ounce range, he says.
CIBC Precious Metals Fund has three silver-focused holdings: SilverCrest Metals, Pan American Silver and Wheaton Precious Metals Corp. WPM-T, a royalty and streaming company with exposure to both silver and gold.
Wheaton provides financing for mines in exchange for cash or delivery of the metal, so it’s a lower-risk play because it doesn’t develop and operate mines, he says.
Mr. Greenspan acknowledges there can be risks to the silver and gold rally over the next couple of months. “If interest rates don’t fall as fast as we expect them to, and if there is a jump in inflation post the U.S. election so that the U.S. dollar strengthens, that would be a headwind.”