Why Silver Mining Stocks Are Scorching Hot Right Now
San Francisco (Aug 20) The price of silver is on fire, up more than 30% since the start of the year. This has ignited a massive rally in silver mining stocks, most of which are up triple digits this year:
New York Silver Price Chart
New York Silver Price data by YCharts.
The reason these silver stocks are doing so well has to do with their strong silver-weighted production and falling production costs. That is enabling these miners to cash in on the surging price of silver.
What's going on in the silver market
Silver bottomed out at a five-and-a-half-year low in December amid expectations for rising interest rates in the U.S. and a slowdown in China. However, it is up more than 50% since that time, recently touching a two-year high, after investors and speculators turned to the precious metal as a safe haven amid tumultuous economic times. The Brexit vote, in particular, left the market stunned and sent investors out of currencies like the British pound and into silver. In addition to that, Chinese buyers are scooping up silver futures contracts in droves, and in early July silver contracts traded at four times the normal daily transaction volume on the Chinese market.
Meanwhile, industrial demand for silver remains robust, with demand from the healthcare and technology sectors expected to surge from $700 million to $2.4 billion over the next seven years. In addition, because silver is a key ingredient in solar panels, robust growth in solar panel installation is driving additional demand for industrial silver. In fact, the solar industry is expected to consume 17% of the global industrial silver produced this year, up from just 2% a decade ago.
This one-two punch of increased speculation and rising industrial demand is driving up earnings at leading silver miners.