What happened
Actions of Endeavor Silver (NYSE: EXK) fell by 12% in the first 90 minutes of trading on January 8. Silvercorp Metals (NYSEMKT: SVM), Coeur Mining (NYSE: CDE)and Hecla Mining (NYSE: HL) all fell by about 10%. At around 11:30 am EST, all four precious metal miners were still clinging to material losses. There is a simple answer to the falls here and a more complicated one.
And
Miners Endeavor, Silvercorp, Coeur and Hecla share a common thread: they have relatively strong exposure to silver. This, at a higher level, helps to explain the drop in stock prices here, given that silver fell dramatically in the early trading hours today. Gold also fell, but silver prices tend to be more volatile, and this was once again on display, with silver falling noticeably more than gold. So it makes perfect sense that this quartet of miners with a lot of weight in silver is falling out of favor with investors.
Image source: Getty Images.
However, there is a little more to think about here if you are looking into the precious metals space. For example, gold and silver are often seen as safe haven assets. Basically, investors flock to them in times of stress. This is part of the reason why both metals have recovered so strongly in the last year or so, since the fall along with the market during the bear market in early 2020. It should be noted that silver experienced the most significant price swings . But market sentiment is changing in some important ways.
For example, bad news is good news now, as relatively weak job numbers, along with a new administration preparing to take the reins in Washington, DC, make investors optimistic. The expectation seems to be that additional stimuli will be put into action, which will help to keep the American economy strong. Thus, there is a reduced need for safe haven assets
Meanwhile, bond yields have slowly increased. Bonds and precious metals generally compete for the role of a safe haven asset. Titles are usually accepted because they generate revenue, while gold and silver do not. With bond yields dropping near painful lows in recent years, however, some investors have preferred gold and silver. But, as bond yields increase, the loss of opportunity to hold precious metals (not collecting interest income) also increases. Once again, silver and gold lose.
The novelty in this story is the role of digital currencies like bitcoin. This particular option has recently had a massive price run, reaching all-time highs. Investors are increasingly looking to digital currencies as an alternative to the choice of older safe haven assets. And with the price of bitcoin in the news lately for decidedly optimistic reasons, it wouldn’t be shocking to think that gold and silver investors would switch alliances.
EXK data by YCharts
It is difficult for mining stocks of precious metals and precious metals to overcome such global changes. In fact, Endeavor Silver, which reported strong production results on Jan. 7, saw three Wall Street analysts raise their stock price targets today. This would normally put investors in a bullish climate, but with the dynamics noted above changing at the same time, it did not happen this time.
What now
Long-term investors should probably not try to time the ups and downs of silver and gold. It is a much better idea to look at these metals, and companies that exploit them, such as Endeavor, Silvercorp, Coeur and Hecla, as diversifying assets. That said, after a long string of positive successes for precious metals and the headwinds that are beginning to attract investors’ attention, those looking for safe haven assets may want to err on the side of caution and keep money in the moment. Gold and silver are already volatile, but after huge gains after the 2020 bear market, even more pronounced ups and downs may be the norm for now, given the general changes that are taking shape in the world.