Are Silver Prices Set to Soar This Year

By Staff Writer / April 28, 2021 / Article Link

Analysts continue to view silver as one of the most undervalued asset classes.  With plenty of reasons for the price to climb as high as $50, now is the time to invest in the best silver stocks to buy. After testing the $24 resistance level several times, silver prices have now settled at $26.57 an ounce on Wednesday.

An improvement in investor interest can potentially fuel silver’s surge by as much as 30% this year as global demand for the metal increases. The appeal of silver comes from its dual qualities of a precious metal and a safe haven. Now, as investors look at the uncertainty tied to the fourth wave of COVID-19 infections, and the economy is showing signs of improving, so are silver prices — given that it’s an industrial metal as well.

At the start of the COVID-19 pandemic, industrial silver demand fell by 5% to a five-year low of 486.8 million ounces. However, panic buying of silver bars and coins lifted net physical investment demand by 8% to a four-year high of 200.5 million ounces.  According to the World Silver Survey silver demand is expected to increase this year by 15% globally, up to 1.03 billion ounces.

As markets started showing signs of stabilization, investors turned their attention towards mining stocks of gold and silver miners. The best silver stocks to buy right now come from miners that generate a significant portion of their revenue from silver mining rather than focus on a basket of precious metals.

One of the best silver mining stocks is that of First Majestic Silver (NYSE:AG). This company is one of the most pure-play silver mining companies in the industry with silver making 65% of its revenue in 2020, the largest percentage in the mining industry. For 2021, its prospects are even better as it expects that percentage to grow to 70% - ahead of its rivals. Estimates for silver miners usually range between 35% and 65% of their revenue annually.

First Majestic predominantly focuses on operating its mines in Mexico, which produces more silver than any country in the world. It has three producing mines in Mexico and several others in development.

Wheaton Precious Metals (NYSE:WPM) is another mining stock that warrants attention from investors. The precious metal streaming company has a different business model where it provides mining companies with up-front cash payments to cover their high fixed operating costs. It does this in exchange for the right to buy the future production of the mines at fixed prices.

As a result, Wheaton now has streaming contacts in place with several mining companies for shares of their precious metals production. The company expects that 40% of its production volume in the 2021 to 2024 time frame will come from its silver streams. Gold and palladium will provide the bulk of its remaining output. The company's silver streaming agreements give it the right to purchase the precious metal from specific mines at an average cost of $5.31 per ounce in the 2020 to 2024 period. Investors who own stock in Wheaton enjoy the same leveraged upside to silver prices as a mining company and benefit when silver prices rise because high prices enable mining companies to accelerate their rates of growth.