After a four-year decline of 73%, silver is on a roll this year clocking a 25% gain so far. The precious white metal, currently at $17.32 an ounce, has even outshone gold's 21% gain. Increasing safe haven demand due to a weakening greenback, slowdown in China, volatile equity markets and introduction of negative interest rates by several of the world's central banks (including Japan) have turned the tables in favor of silver.
Rate Hike Currently Off the Table
The U.S GDP rose a meager 0.8% in the first quarter, the slowest pace in two years. The U.S. jobs market is starting to falter, as the economy created a meager 38,000 jobs in May, far below the consensus estimate. Nonfarm payrolls registered its lowest increase since Sep 2010.
The anemic numbers reduced the likelihood of a rate hike this month, which in turn bodes well for precious metals like gold and silver. A delay in raising interest rates elevates demand for these precious metals, which produce no income but rely on price appreciation to lure investors.
Brexit a Likely Driver
Silver prices are also gaining on the back of concerns about a potential British exit from the European Union. If U.K. voters decide on Jun 23 to leave the European Union, it would have a negative impact on economic activity and investor confidence.
Demand Poised to Grow
Silver has varied industrial applications and is thus driven by industrial demand. Industrial demand for silver is set to increase from 54% last year. The booming solar industry might even account for more than 13% of total industrial demand for silver in 2016. The demand from ethylene oxide producers is expected to jump more than 25% year over year.
Demand in jewelry fabrication is expected to increase by 5% and coin demand will be robust this year. Increased interest in safe haven assets will also drive physical silver investment demand. India will emerge as a major consumer driven by increased investor interest and growth in jewelry, decorative items and silverware fabrication.
Supply Remains Constrained
Global mine supply production is projected to fall 5% in 2016 - the first drop in global silver mine production since 2002. The soft price environment had deterred producers to invest in expanding capacity at existing operations. Moreover, silver scrap supply, which has been on the decline for several years, should further weaken in 2016. Going forward, global silver mine production is expected to slump through 2019 as primary silver production from more mature operations starts to meander.
Thus, we are looking at a potential silver deficit, which in turn provides a solid ground for silver price gains this year. Price appreciation will also be supported by a flight to safety amid volatile equity markets.
The silver mining industry currently has a Zacks Industry Rank of 33 out of more than 250 industries, depicting a favorable position. We believe investing in silver stocks now would be a prudent move given the tailwinds driving the precious metal. The six silver stocks selected here also carry a bullish Zacks Rank #2 (Buy).
Compañía de Minas Buenaventura S.A.A.BVN
Headquartered in Lima, Peru, Compañía de Minas Buenaventura engages in the exploration, mining, and processing of gold, silver, lead, zinc, and copper metals in Peru. This Zacks Rank #2 stock has surged 151.64% year to date. Its earnings estimate for the current year has improved 225% over the last 60 days.
First Majestic Silver Corp . AG
Vancouver, Canada-based First Majestic Silver Corp. engages in the acquisition, exploration, development, and production of mineral properties with a focus on silver projects in Mexico. First Majestic holds a Zacks Rank #2. The bottom-line estimate for the current year has recovered dramatically over the last 60 days from a loss of 7 cents to earnings of 12 cents. The stock has gained 285.02% year to date.
Fortuna Silver Mines Inc.FSM
Headquartered in Lima, Peru, Fortuna Silver Mines Inc. engages in the exploration, extraction, and processing of mineral properties in Latin America. This Zacks Rank #2 stock has gained 186.22% year to date. Its earnings estimate for the current year has improved 18% over the last 60 days.
Hochschild Mining PLCHCHDF
Headquartered in Lima, Peru, Hochschild Mining plc, a precious metals company, engages in the exploration, mining, processing, and sale of silver and gold deposits in the Americas.
Hochschild Mining carries a Zacks Rank #2 and has gained 217.1% so far this year. Over the past 60 days, the consensus estimate for the current year has gone up from a loss of 6 cents to earnings of 2 cents.
MAG Silver Corp . MVG
Vancouver, Canada-based MAG Silver Corp., an exploration and development company, focuses on acquiring, exploring, and developing district scale projects located primarily in the Mexican Silver Belt. It explores copper, gold, silver, lead, and zinc deposits. MAG Silver carries a Zacks Rank #2 and has surged 86.69% year to date. Over the past 60 days, the Zacks Consensus Estimate has narrowed from a loss of 12 cents to a loss of 5 cents for the current year.
Silver Standard Resources Inc.SSRI
Based in Vancouver, Canada, Silver Standard Resources Inc. engages in the acquisition, exploration, development, and operation of precious metal resource properties in the Americas. Silver Standard carries a Zacks Rank #2 and its shares have gone up 119.88% year to date. The Zacks Consensus Estimate for the current year has moved north 6% over the past 60 days.
With prospects of surging demand and plummeting supply, the stage is set for rising silver prices . These silver stocks seem to be on the right curve to yield better returns and reward their shareholders.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.