Commodities & Metals

Will Silver as the Devil's Metal Overtake the Gold Bugs for the Rest of 2020

Low interest rates, trillions of newly printed dollars, central banks needing hard assets, rising trade tensions and other geopolitical risks. Oh, and throw in a pandemic too. It’s the perfect recipe for gold and precious metals to send people into hard assets and so-called safety trades. On Friday, the price of gold hit a new closing high for the first time in about nine years, and it hit $1,900 per ounce. Yet, investors, speculators and hoarders are playing precious metals in many other ways. It’s not at all limited to just buying gold.

While $1,900 gold will sound more impressive than most commodities, the price of silver has finally caught up with the performance of gold. It has done that and then some — and then some more. Silver is often considered to be the “poor man’s gold,” but it very frequently does not track in the same manner. Silver did not get the other nickname of the “devil’s metal” for no reason at all. In fact, the gold-to-silver ratio went haywire earlier in 2020, and it was as if there never would be a need for silver ever again.

While many investors are hyper-focused on gold, the issue that may be overlooked by much of the investing public is what happens to the price of silver in the coming weeks.

Currently, demand for physical gold, bars and coins, exchange-traded funds, futures and so on is high. As of Friday, gold was up almost 7% over the past month, and silver’s gain was a sharp 25% as it was finally catching up. As for the year-to-date gains, gold’s was 24% higher, compared with a 26% gain for silver.

The SPDR Gold Shares (NYSEARCA: GLD) is the largest gold-backed exchange-traded product and has been trading since 2004. As of Friday, the trust held a whopping 1,227.05 tonnes of gold. That measured to more than 39.45 million ounces of gold, and it was listed as more than $75 billion in total assets. The fund will have a slight performance issue over time compared with physical gold because the trust has a 0.4% expense ratio. As a result of fees building over time, the absolute highs above $184 back in 2011 in the fund have not quite been surpassed. In 2020, gold ETF demand has been off the charts.

The iShares Silver Trust (NYSEARCA: SLV) is the top silver-backed exchange-traded product. It counts some $12.77 billion in assets, derived from almost 17,380 tonnes held in the trust. The fund has existed since 2006, and its sponsor fee is 0.50%. While this one is was at $21.25 on Friday, this exchange-traded product traded up into the $30s and even well into the $40s in 2011.

Gold miners, particularly if they have labor issues or have to close down mines because of contagion worries, can sometimes not perform as well as gold. That said, the two top gold-mining outfits in North America have based their budgets ahead around gold prices of $1,100 per ounce. That leaves a lot of room for more profits, which also leaves much room for more distributions or dividends.

Newmont Corp. (NYSE: NEM) was last seen at $66.50 a share and with over $53 billion in market cap. Its 52-week high is $69.13, and its Refinitiv consensus analyst target price is up at $75.47. Apparently, analysts believe the ever higher gold price is going to send the gold-mining giant up much higher still. Its merger with Goldcorp now looks like it was a steal as it became the largest gold mining outfit in the world by valuation.

Barrick Gold Corp. (NYSE: GOLD) also has moved on well beyond its acquisition of Randgold, and its $28.40 share price generates a market cap of $50 billion. Barrick has a 52-week high of $28.87 and a consensus target price of $31.21.