Whenever there’s a big rally in precious metals, gold tends to take the spotlight. And while silver and other metals aren’t guaranteed to march higher when gold does, the last couple of years have seen notable appreciation in both gold and silver. Indeed, silver may have come a bit later to the party, but its rally was arguably more explosive.
While gold is a fantastic portfolio stabilizer for a portfolio that aims to ride on the “debasement trade” or geopolitical risks, silver has also shone quite brightly despite its history as an industrial metal (think its use in solar panels).
Of course, gold’s limited application, especially relative to silver, was a feature more than a bug, since supply-demand dynamics didn’t dictate prices. And while silver is a far more volatile asset to hold than gold, with a return track record that I’d argue isn’t as great (especially in downturns), I think that it makes sense to own alongside gold, if not for a steadier ride, perhaps for greater diversification and a bit of a jolt when precious metals begin a multi-year bull run.
The silver lining on silver
In my humble opinion, the silver-heavier miners are still underappreciated, especially as silver looks to join gold in the so-called “debasement trade,” which is taking a breather and might kick into high gear once the U.S. Federal Reserve (the Fed) is done with its latest rate-hiking cycle.
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Any way you look at it, silver is starting to have a moment again after gaining nearly 19% from its lows in July. Still down a country mile from highs seen at the start of the year, questions linger as to whether silver stands out as a better relative value.
In any case, the big question is whether the bottom is in with the correction, and the answer is “nobody knows for sure.” That said, I still think it’s worth checking in on the silver miners every so often. While silver is often a byproduct of gold mining, there do exist some miners out there that mine more than their fair share of silver. And, in my humble opinion, it’s these names that could carry the most value as silver looks to get off the canvas in a similar way that gold has.
First Majestic
Time will tell if silver’s big run will lag gold’s bounce and by how much. Either way, a well-run miner like First Majestic (TSX: AG) stands out as a worthy bet on silver, as most other investors give the gold miners more attention and investment dollars.
With a solid track record of discovering new high-grade deposits and the ability to drive operating efficiencies across the board, perhaps the relatively small ($13.9 billion) miner is worth a closer look, even at a seemingly hefty 21.4 times forward price-to-earnings (P/E) multiple.
After more than doubling in a year, even with the vicious correction thrown in, the shares are still priced with a premium in mind, but the price of admission is completely warranted in my view, given the leverage to silver (more torque in a metal that has more explosiveness than gold), its strong track record in exploration and efficient production expansion, as well as the ability to part with non-core assets that might get in the way of achieving incredibly efficient metrics.
