Silver stocks have had a mixed performance over the past few years but 2022 is beginning with major boons for this precious metal. With cryptocurrency crashes, growing inflation and the Ukraine-Russia conflict, silver, and more importantly, silver stocks are poised to explode. Here are some of the reasons why we think silver stocks are worth paying attention to right now.
It was fun while it lasted, but with inflation soaring and the Fed eyeing up to six rate hikes this year, so-called cheap money is drying up – and investors will be taking a much closer look at their risk profiles.
President and CEO of Silver Hammer Mining Corp., Morgan Lekstrom, predicts 2022 will hold plenty of opportunities for silver to shine. He recently told Kitco News that while price action in 2021 was disappointing, risk and volatility will send investors flocking back to precious metals, specifically into silver.
The crypto market, notoriously volatile, is already showing signs of waning investor interest, losing over a trillion in market cap from peak highs in November. This could be good news for real assets like silver which has struggled to find its footing above $24. As of writing, sliver was challenging resistance at the $24-mark, trading at $23.92.
“People had access to cheap money for a very long time and that changed their risk tolerance,” said Lekstrom. “And when they saw what was happening in cryptos, people started piling in. A lot bought into this almost new American dream. They bought into the dream that ‘I’m going to be able to make a lot of money in cryptos.’”
“[Investors] forgot a lot about silver and gold and specifically silver, but you will start to see that trend reverse.”
Although he makes no secret of his bullish stance on silver, Lekstrom admits the key to unlocking the white metal’s protentional may lie with its yellow counterpart.
Saying during his interview that “if gold prices can get back above $1,900 and push towards $2,000, that is when we will see silver soar.”
Silver serves dual purposes as both a monetary metal and an industrial metal. This puts silver investors in an excellent position to hedge their portfolios against climbing inflation and gain exposure to industrial silver demand.
Precious metals like silver and gold are typically regarded as safe-haven investments during inflationary periods, although this inverse dollar relationship has not always held true. However, unlike gold, silver also has heavy industrial demand; the metal is used to manufacture everything from solar panels and electric vehicles to medical devices and photography equipment.
The markets are currently pricing in 6 to 7 rate hikes, but not everyone believes this is the monetary path the Fed will be following.
During his interview, Lekstrom told Kitco that aggressive rate hikes might not prove to be the right tool to combat economic conditions that are pushing inflation higher.
“When you look at the macro inflation model, hyperinflation does not fit right now,” he said. “It could be counterproductive for a while, but I don’t think interest rates hikes will solve that.”
It remains unclear whether the Fed will actually increase rates in March as expected, but already a growing number of analysts don’t believe hikes will be as aggressive as the markets are predicting. Inflation is already weakening economic growth, and tightened monetary policy will only serve to slow it further; the Fed may have to quickly reverse course on its monetary policy or risk triggering an economic and financial crisis.
Silver continued to test resistance at $24 during trading Friday, briefly breaking above before closing at $23.92. If silver can breakout, some bulls see the next upside technical resistance level at the January high of $24.76.
Exposure to commodities and precious metals like silver offers portfolio diversification from equities and bonds. Experts suggest allocating between 5% and 15% of your holdings into precious metals; however, that figure will vary based on your risk tolerance and long-term investing goals.
And the good news is, you don’t need to buy silver to gain exposure. Silver stocks and EFTs or mutual funds that hold silver mining stocks provide exposure to silver prices without holding physical silver. Silver stocks also have the added benefit of leveraging company performance for increased returns versus investing in bullion.
Given that miners who have silver production in their portfolio stand to profit from silver price increases, Golden Tag $GOG is a silver mining company worth watching.
Golden Tag Resources Ltd. (TSXV: GOG) is a North American-based mineral exploration company exploring and developing assets in favourable mining districts. The company holds a 100% interest, subject to a 2% NSR, in the San Diego Project located within the prolific Velardeña Mining District in Durango State, Mexico. The site has hosted several high-producing mines over the past century, and the San Diego property is one of the country’s most significant undeveloped silver assets.
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Disclaimer: The company described in this article is a customer of NAI Interactive Ltd. This material is for informational purposes only and is not intended as a recommendation or offer or solicitation for the purchase or sale of any securities or financial instruments, or for transactions involving any financial instrument or trading strategy.
