Gold / Silver ratio narrows further
Investors holding either Gold or Silver stocks have surely noticed the Gold / Silver ratio narrowing further. Following the positive non-farm payroll in the US showing a 379,000 increase in jobs, almost entirely in the hospitality and entertainment sectors (i.e. restaurants and bars due to reopening), most commodities have continued to be on a tear. Copper is flying, as is Iron Ore. However, Gold has pulled back since reaching it’s all time highs in the summer of 2020.
Paradoxically, the Gold / Silver ratio, a ratio used to measure the magnitude of Gold’s price premium vs Silver (typically compared to what’s in the crust i.e. ranges anywhere from 12:1 to 17:1), has narrowed further. Typically Gold and Silver move in lockstep, however this time it appears to be different. The ratio was comfortably above the 100 threshold in the not too distant past. It now sits at 66.7 – a significant pullback.
This is partially due to stability exhibited by Silver. Since late July 2020, Gold has declined almost 7%, whereas Silver has gone up over 27%.
A small part can be credited to the WSB followers on Reddit. Following the coordinated market purchase to squeeze the short sellers on GME stock, there was some attention brought to Silver and Silver stocks as well. It’s important to note it was divided attention, as other stocks like AMC and NOK and many more were vying for the same attention. Nevertheless, while it is certainly not the sole contributor, it may be fair to say it has at least made a minor dent.
While it is more than a fair hypothesis that Gold has simply been lagging, and will bridge the gap in the not too distant future, another, and likely a more significant, factor contributing to Silver’s price rise is that the metal is imperative for certain industrial usages. While many new traders buying Silver stocks look at the investment as an opportunity to buy precious metals, the benefit of being valuable as an industrial metal is often overlooked.
PV Magazine recently published an article talking about how Silver accounts for 10% of PV module costs. Here they get the opinion of Matthew Watson, a former CEO of SoloPower. Mr. Watson is undoubtedly an expert on the subject of solar panels, and his knowledge of the space appears to indicate the industrial demand will simply grow:
The share of silver in PV module costs has risen by around 5% in recent months to account for approximately 10% of the total, according to U.S.-based analyst Matt Watson.
“With PV module costs in the neighborhood of $0.018-$0.019/watt and silver representing around 10% of the overall module cost structure, and module and cell prices still declining, finding a means to lower the silver cost component is going to become an increasingly difficult task,” Watson told pv magazine.
What’s astonishing is that Matthew Watson then talks about the historical behaviour of Silver, and how he expects the price to rise.
“Over the past 20 years, silver has averaged an 8.31% year-on-year growth in prices, which is greater than the current rate of design thrifting. This means lowering that silver $/watt component is going to be very difficult.”
Watson noted that silver is now sold at around $26 per ounce, but said that prices will continue to climb.
“When you study the silver market, electronics demand, led by the Solar PV markets, all have increasingly larger forecast demand,” he said, noting that silver is becoming more of an industrial metal with each passing year. “The projected solar PV module silver cost per watt produced is leveling out going forward as a result of these silver price climbs … As other cell and module costs decline, silver will consume an even larger percentage of the overall module cost as these trends continue.”
He concludes with the following comments:
“In my career, I did extensive work on alternatives alloys without any real success,” he said. “Life testing and electrical efficiency losses always brought us back to silver alloys.”
Watson said that engineering teams use precious metals in electronics for a reason.
“Silver of course is the most conductive mineral in the world, with good corrosion resistance properties assisting the durability of the module,” he added.
Conclusion
The best way to position yourself is to purchase mining stocks with the potential for significant appreciation. While Gold and Silver prices may fluctuate, mining explorers will discover assets which eventually get extracted. The extraction of said mines are profitable, and at current prices of Gold and Silver, despite the pullback, it is still very very attractive to invest in junior mining stocks.
We remain bullish on Etruscus Resources (CSE:ETR) given that they are the cheapest in the Golden Triangle by market cap right now. They also found an astonishing amount of Silver in their recent grab samples. Highlights include a jaw-dropping 7,013 g/t silver, 12.7 g/t gold, 3.9% zinc, 2.4% lead, and 0.2% copper. The company currently trades just shy of $0.30, and is worth over $1 based on where comparables trade. This is a great risk reward opportunity for anyone still looking for a cheap mining stock to get behind.