As Inflation hits 7.7%, Investors Left Searching for Safe Haven – A Look At Silver Exploration Stocks

silver
Published on: June 23, 2022
Author: Philip Tai

Soaring fuel and food prices pushed the annual inflation rate in May to its highest level in nearly 4 decades. Rising cost of living for Canadians has been felt in household budgets and markets are bracing for the Bank of Canada’s impending interest rate hike next month.

Statistics Canada said on June 22 that the consumer price index in May rose 7.7 per cent compared with the same time in 2021, the fastest pace since January 1983 when it gained 8.2 per cent. That’s up almost a percentage point from April’s 6.8 percent gain.

Investors should be aware that real estate, a darling asset class for Canadians, will be impacted by higher inflation, particularly the government’s response to inflation. What will be the next safe haven asset for Canadian investors? Is silver worth to take a look?

Higher Interest Rates will Impact Real Estate Investment

As investors know, the market most sensitive to interest rates is residential real estate. We now know that one of the reasons why home prices exploded during the pandemic was the Bank of Canada dropping its benchmark interest rates to almost zero. The central bank has now pushed that rate to 1.5 per cent and has promised to raise rates higher, which is now fairly certain given this week’s inflation numbers. Home prices and sales are now correcting in most Canadian jurisdictions.

There are some early signs of a correction in the inflation data, too. Statistics Canada’s measure of shelter costs, which attempts to broadly mimic the monthly cost of having a home, increased 7.4 per cent from May 2021, the same as in April. Homeowners’ replacement cost, a proxy for real-estate prices, rose 11.1 per cent, down from 13 per cent in the previous month. Housing inflation shows indication of cooling.

While a welcome sign for renters and new buyers, investors, who have long seen Canadian real estate as a guaranteed investment, may be scrambling to plan their next move.  The days of low cost capital and record setting price growth may be over for the foreseeable future.

Is Silver Worth a Look?

According to recent market commentary, silver appears to be relatively undervalued compared to its comparable, copper and gold. 

Silver has traditionally been seen as a top long-term hedge against inflation and currency devaluation so its lower price since August 2020 is confusing to many. Strangely, industrial metals like copper, iron, zinc, aluminum and nickel have spiked higher, but silver, even with its industrial uses, has not.

However, we know that silver has strong long term industrial demand, particularly from the clean energy sector. A contrarian approach may yield investment opportunities in this sector. Contrarian investors often target distressed stocks and then sell them once the share price has recovered and other investors begin targeting the company as well. Contrarian investing is built around the idea that the herd instinct that can take control of market direction doesn’t make for a good investing strategy.  The most prominent example of a contrarian investor is Warren Buffett. His famous quote summarizes the contrarian investing approach: “Be fearful when others are greedy, and greedy when others are fearful.”

A Look at Golden Tag Resources – Exploring for Silver in Mexico’s Silver District

Golden Tag Resources Ltd. (TSXV:GOG) is a Toronto based mineral resource exploration company. The Company holds a 100% interest, subject to a 2% NSR, in the San Diego Project, in Durango, Mexico. The San Diego property is among the largest undeveloped silver assets in Mexico and is located within the prolific Velardeña Mining District. Velardeña hosts several mines having produced silver, zinc, lead and gold for over 100 years. 

Keep an eye on their most recent drilling results here.

Disclaimer: NAI is being compensated for this content. Materials contained in this content are for information purposes only and is not intended to constitute an offering of securities in any jurisdiction. Nothing on this content should be construed as an offer, solicitation or recommendation to buy or sell products or securities.

In-Depth Analysis Investment Mining Precious Metals Silver