The silver price has been trading within a tight range since it reached a seven-year high in August. With mining companies reporting their quarterly earnings and updating their guidance, they could present an opportunity for investing in silver stocks.
In this article, we take a look at three silver stocks to watch, as well as one popular ETF, and review the analyst opinion on the industry’s future.
Scroll down for a video in which Capital.com’s chief market strategist, David Jones, discusses some of the best silver stocks to buy and uses technical chart analysis to suggest key trading levels.
Silver mining stocks track precious metal price
The silver price has drifted after it reached its highest level since March 2013 above $29 per ounce in August, trading between $23-26 per ounce since late September. The metal has been driven by investment demand for precious metals as investors hedge against inflation and economic uncertainty.
The silver market is still up by 36 per cent since the start of the year. That has lifted silver mining stocks, as even companies that have had to reduce production during lockdowns to tackle the Covid-19 pandemic have been able to sell their output for higher prices and increase revenues.
There is technical support for the metal at $21.65 per ounce and any weakness likely presents a buying opportunity. That would also offer a buying opportunity for silver mining stocks, including Pan American Silver, Wheaton Precious Metals and First Majestic, as well as the iShares Silver Trust exchange-traded fund (ETF).
Silver mining stocks to keep on your investment radar
The world’s second-largest primary silver miner, Canada-based Pan American reported a 73 per cent year-on-year increase in revenues during the third quarter. Silver production totalled 4 million ounces, down from 6.7 million ounces a year earlier as the pandemic disrupted production.
The company has reduced its estimate for its silver production in 2020 from 19-22 million ounces to 18-19 million ounces, with seven of its nine operations running with limited workforce levels to accommodate Covid-19 protocols. However, the rise in the silver market lifted its average sales prices, accounting for the increase in revenues.
As one of the top silver stocks, Pan American’s share price has risen by 39 per cent since the start of the year to the $32 level. It is building a base above $30 per share with $29.58 as technical support. If the silver price resumes its rally, the stock could run back up to a price target of $40 per share.
One of the world’s largest streaming companies in precious metals, Wheaton Precious Metals does not own mines, but buys the production from mines at a predetermined price for resale. The company reported a 37.4 per cent increase in revenues during the third quarter on higher precious metal prices. It had targeted an average 2020 price of $18 per ounce for silver, below where the market has been trading. However, third-quarter earnings came in at $0.34 per share, below analysts’ expectations of $0.39 per share.
The share price is still in correction territory, having declined by 21 per cent from the August high, although it remains up by 49 per cent since the start of the year. The stock would need to rebound to $52 per share to stage a recovery and with support around $36.70 per share there is scope for further weakness from the current $44 level.
One of the poorer share price performers in the silver industry, Canada-based First Majestic Silver operates in Mexico where production has been disrupted by the pandemic. The company’s silver production fell by 43 per cent year on year to 1.8 million ounces during the second quarter, and its revenues fell by 58 per cent to $34.9m (£26.4m, €29.7m).
The company temporarily suspended operations at its three operating mines during most of April and May but ramped up during the third quarter, lifting production to 3.2 million ounces compared with 3.4 million in the third quarter of 2019. Revenues were up by 30 per cent year on year to $125.9m.
The share price on the New York Stock Exchange has fallen by more than 11 per cent year-to-date from around $12 per share to $10, after falling from $14 per share in August. The stock is building a base above $9 per share and could be forming a double bottom that would break it out of the recent downtrend and return to the August high of $14 per share.
iShares Silver Trust (SLV)
The iShares Silver Trust ETF is designed to track the movement of the silver price, as a way for investors to gain diversified exposure to the silver market rather than taking on the risk of picking individual silver stocks to invest in. The fund is up by 33 per cent year to date, trading around $22 per share. It rose to $27 per share in August then slipped back, in line with the silver price.
Like silver, the fund has been trading sideways, but there is strong support for the ETF around $20.50 per share and the potential for the price to move higher.
Silver stocks to continue tracking metal price
Watch this video in which David Jones, chief market strategist at Capital.com, provides a silver stocks forecast overview.
The outlook for silver mining stocks will depend on the price for the precious metal. Analysts at Australian bank ANZ forecast the silver price will rise further to $29.7 per ounce by December and peak at $30.7 per ounce by March 2021.
Ole Hansen, head of the commodity strategy at Denmark’s Saxo Bank noted that the announcement of a Covid-19 vaccine “probably holds the key to the eventual recovery in precious metals. We do not believe that the gold market rally, let alone silver, has ended… For now, however, the falling knife risk may keep potential buyers sidelined while waiting for the bounce.
Analysts at Heraeus Precious Metals note that China’s industrial rebound bodes well for the silver market, as key indicators such as purchasing managers’ index (PMI) data and industrial output continued to show signs of strength. “China is now on track to be the only major economy to record growth this year. Industrial production gained 6.9 per cent in September, the highest level this year and the same rate as in December before the pandemic. As the largest end-user of silver for industrial purposes, the silver market stands to benefit from China’s impressive recovery post-Covid.”
However, the Heraeus analysts expect the silver market to underperform based on conditions outside China. “A protracted recovery elsewhere in the world, particularly in Europe and South Asia, will offset growth in China. Consequently, global industrial demand is forecast to slump by around 10 per cent this year. In the near term, silver is likely to underperform gold while the prices are declining.”
What is your silver stocks forecast? Given the uncertainty on the silver market, an option to try to profit from the volatility without buying an actual asset is to trade shares in silver stocks through contracts for difference (CFDs).
Trade Pan American Silver Corp. - PAAS CFD
Learn more about CFD trading with our free online courses and find out how to trade shares via CFDs with our comprehensive guide. Once you are ready, create a trading account at Capital.com, explore our silver stocks list and start trading them through CFDs today.