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Silver Prices Up 19% in May: Will the Recovery Stay?
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After being battered for most part of this year owing to the coronavirus-induced crisis, silver prices gained 19.3% in May — its best month since 2011. Silver prices are currently at $17.63 — major recovery from the 10-year low of $12.12 in March. This turnaround has been triggered by expectations of an economic recovery that is expected to revive demand for the white metal given its many industrial applications.
Silver, like gold, is considered a safe-haven asset in times of uncertainty. This year has been rife with uncertainty starting with the U.S-Iran tensions, the coronavirus outbreak in China that soon took the shape of a pandemic, strained U.S.-China relations, and the ongoing civil unrest in the Unites States. However, while gold yielded a year-to-date return of 11.8%, silver witnessed a decline of 0.5% primarily because industrial applications account for 60% of the global silver consumption. The slowdown in industrial activity amid the pandemic impacted demand for the metal.
Pickup in Industrial Activity Bodes Well for Silver
The Institute for Supply Management’s Manufacturing Purchasing Managers’ Index (PMI) came in at 43.1% in May, an improvement from 41.5% for April as businesses are resuming operations in most states. Although the reading remains below 50 (which denotes contraction), the sequential improvement offers a ray of hope. Considering that the manufacturing sector accounts for 11% of the U.S. economy, a pick up in the sector raises hope that the economy is beginning to recover.
Stronger-than-expected US non-farm payroll data in May has also added to the optimism. Per the Labor department, the U.S economy added 2.5 million jobs in May faring better than the anticipated decline of 7.5 million and the record decline of 20.7 million in April. Unemployment rate was at 13.3% in May, an improvement from the record 14.7% in April.
Meanwhile in China, the Official NBS Manufacturing PMI was 50.6 in May 2020 — the third straight month of increase in factory activity, as companies resumed operations. This indicates a major recovery from the all-time low PMI reading of 35.7 in February, which was weighed down by the coronavirus-induced lockdown. This indicates that China is gradually moving out of the crisis and is working toward full normalization of economic activities. Silver plays a vital role in the production of solar cells that produce electricity. China is the largest photovoltaic (PV) silver market globally. The country is also the world's largest auto market. With more than 36 million ounces of silver utilized annually in motor vehicles, a pick-up in manufacturing activity will translate to silver demand.
Miners Back on Track
Mexico, which is the world’s largest silver producer, churns out nearly 23% of world production of the white metal. About 80% of Mexico’s mining sector has been restarted, and the country continues to ease restrictions on miners. Peru, which trails Mexico in silver production, is also allowing miners to resume production.
The Silver Institute anticipates global silver mine production to decline 4.6% in 2020 primarily due to the disruption of operations and mine closures on account of the pandemic in the beginning of the year. Overall demand is expected to decline 3%, as strong investment buying on macroeconomic uncertainty and geopolitical tensions is likely to somewhat mitigate the impact of the weakness in the industrial sector in the first half of the year.
The Institute expects silver prices to attain the $19 level by the end of this year. However, the full-year average price is projected at $15.70, indicating a year-over-year decline of 3%.
The concerns over the riots in the United States, rising animosity between the United States and China, and the coronavirus pandemic will continue to fuel the safe-haven demand for gold and silver. Global efforts to restart and revive economies following the coronavirus pandemic-induced lockdowns are anticipated to boost silver demand, leading to a rebound in the white metal’s prices.
Demand from the electrical and electronics sector should account for the bulk of gains. Silver utilization in the automotive industry is likely to register impressive growth aided by vehicles’ rising sophistication and electrification. Silver use in 5G-infrastructure and upcoming intelligent electronics is also likely to fuel demand. The ongoing revolution in green technologies, driven by the exponential growth of new energy vehicles and investment in solar photovoltaic energy, will act as a key catalyst.
Industry Performance & Rank
In the past month, the Mining - Silver industry has rallied 22.3%, outperforming the S&P 500’s growth of 8.7%. The industry falls under the broader Basic Material sector, which slid 10.2%.
The industry currently carries a Zacks Industry Rank #140, which places it at the bottom 40% of more than 250 Zacks industries. The group's Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates gloomy prospects for the near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Vancouver, Canada-based Pan American Silver Corp has an estimated long-term earnings growth rate of 2.4%. The company has a trailing four-quarter earnings surprise of 32.2%, on average.
The Zacks Consensus Estimate for fiscal 2020 earnings for Alexco Resource, which is based in Vancouver, indicates a year-over-year improvement of 166.7%. The estimates have also been revised upward from an expectation of a loss of 5 cents to earnings of 4 cents per share in the past 60 days.
Investors might consider keeping an eye on stocks like Endeavour Silver Corporation (EXK - Free Report) and Hecla Mining Company (HL - Free Report) . Both these companies currently have a Zacks Rank #3 (Hold) and positive earnings estimates for 2020.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
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Silver Prices Up 19% in May: Will the Recovery Stay?
After being battered for most part of this year owing to the coronavirus-induced crisis, silver prices gained 19.3% in May — its best month since 2011. Silver prices are currently at $17.63 — major recovery from the 10-year low of $12.12 in March. This turnaround has been triggered by expectations of an economic recovery that is expected to revive demand for the white metal given its many industrial applications.
Silver, like gold, is considered a safe-haven asset in times of uncertainty. This year has been rife with uncertainty starting with the U.S-Iran tensions, the coronavirus outbreak in China that soon took the shape of a pandemic, strained U.S.-China relations, and the ongoing civil unrest in the Unites States. However, while gold yielded a year-to-date return of 11.8%, silver witnessed a decline of 0.5% primarily because industrial applications account for 60% of the global silver consumption. The slowdown in industrial activity amid the pandemic impacted demand for the metal.
Pickup in Industrial Activity Bodes Well for Silver
The Institute for Supply Management’s Manufacturing Purchasing Managers’ Index (PMI) came in at 43.1% in May, an improvement from 41.5% for April as businesses are resuming operations in most states. Although the reading remains below 50 (which denotes contraction), the sequential improvement offers a ray of hope. Considering that the manufacturing sector accounts for 11% of the U.S. economy, a pick up in the sector raises hope that the economy is beginning to recover.
Stronger-than-expected US non-farm payroll data in May has also added to the optimism. Per the Labor department, the U.S economy added 2.5 million jobs in May faring better than the anticipated decline of 7.5 million and the record decline of 20.7 million in April. Unemployment rate was at 13.3% in May, an improvement from the record 14.7% in April.
Meanwhile in China, the Official NBS Manufacturing PMI was 50.6 in May 2020 — the third straight month of increase in factory activity, as companies resumed operations. This indicates a major recovery from the all-time low PMI reading of 35.7 in February, which was weighed down by the coronavirus-induced lockdown. This indicates that China is gradually moving out of the crisis and is working toward full normalization of economic activities. Silver plays a vital role in the production of solar cells that produce electricity. China is the largest photovoltaic (PV) silver market globally. The country is also the world's largest auto market. With more than 36 million ounces of silver utilized annually in motor vehicles, a pick-up in manufacturing activity will translate to silver demand.
Miners Back on Track
Mexico, which is the world’s largest silver producer, churns out nearly 23% of world production of the white metal. About 80% of Mexico’s mining sector has been restarted, and the country continues to ease restrictions on miners. Peru, which trails Mexico in silver production, is also allowing miners to resume production.
The Silver Institute anticipates global silver mine production to decline 4.6% in 2020 primarily due to the disruption of operations and mine closures on account of the pandemic in the beginning of the year. Overall demand is expected to decline 3%, as strong investment buying on macroeconomic uncertainty and geopolitical tensions is likely to somewhat mitigate the impact of the weakness in the industrial sector in the first half of the year.
The Institute expects silver prices to attain the $19 level by the end of this year. However, the full-year average price is projected at $15.70, indicating a year-over-year decline of 3%.
The concerns over the riots in the United States, rising animosity between the United States and China, and the coronavirus pandemic will continue to fuel the safe-haven demand for gold and silver. Global efforts to restart and revive economies following the coronavirus pandemic-induced lockdowns are anticipated to boost silver demand, leading to a rebound in the white metal’s prices.
Demand from the electrical and electronics sector should account for the bulk of gains. Silver utilization in the automotive industry is likely to register impressive growth aided by vehicles’ rising sophistication and electrification. Silver use in 5G-infrastructure and upcoming intelligent electronics is also likely to fuel demand. The ongoing revolution in green technologies, driven by the exponential growth of new energy vehicles and investment in solar photovoltaic energy, will act as a key catalyst.
Industry Performance & Rank
In the past month, the Mining - Silver industry has rallied 22.3%, outperforming the S&P 500’s growth of 8.7%. The industry falls under the broader Basic Material sector, which slid 10.2%.
The industry currently carries a Zacks Industry Rank #140, which places it at the bottom 40% of more than 250 Zacks industries. The group's Zacks Industry Rank, which is the average of the Zacks Rank of all the member stocks, indicates gloomy prospects for the near term. Our research shows that the top 50% of the Zacks-ranked industries outperforms the bottom 50% by a factor of more than 2 to 1.
Investors keen on the industry may consider Pan American Silver Corp. (PAAS - Free Report) and Alexco Resource Corp , which currently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Vancouver, Canada-based Pan American Silver Corp has an estimated long-term earnings growth rate of 2.4%. The company has a trailing four-quarter earnings surprise of 32.2%, on average.
The Zacks Consensus Estimate for fiscal 2020 earnings for Alexco Resource, which is based in Vancouver, indicates a year-over-year improvement of 166.7%. The estimates have also been revised upward from an expectation of a loss of 5 cents to earnings of 4 cents per share in the past 60 days.
Investors might consider keeping an eye on stocks like Endeavour Silver Corporation (EXK - Free Report) and Hecla Mining Company (HL - Free Report) . Both these companies currently have a Zacks Rank #3 (Hold) and positive earnings estimates for 2020.
Looking for Stocks with Skyrocketing Upside?
Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.
Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.
See the pot trades we're targeting>>