A great time for gold and silver explorers — no demand for a reality check

Gold is at an all-time high this week — in US dollar terms, if not in real terms. Silver, too, is soaring with metal rising 8% in New York on Tuesday.

However, silver still has a long way to go before it reaches its previous high of almost US$50/oz – coming just shy of hitting it in 1980 and, again, in 2011.

For gold, this is only the fourth new all-time record price in 40 years. It hit US$850/oz on 21 January 1980. Then it was not until 3 January 2008 that the second record was set with metal closing at US$855.10/oz. A few years later in 2011, another all time high was set when the precious metal peaked at just under US$1,900/oz.

Now, in the last week of July 2020, it has sailed through US$1,960/oz to reach its highest levels ever – surpassing an intraday high of US$1,978/oz early Tuesday before pulling back.

However, there is still a way to go to a new record in real terms: that would about US$2,660/oz to equal 1980’s high.

Don’t rule it out, though.

Silver’s record journey

Silver, however, still has a long way to go before it sets a new record.

In January 1980 it reached US$49.45/oz, and then in 2011 hitting an intraday high of US$49.50/oz.

At least the gold to silver ratio is rebalancing in the white metal’s favour, sitting at 1:78 as this was written.

And it is the explorers who are seeing the huge share prices rises. For them, it is all blue sky, especially in the period between a project being acquired and the first drill results, not to mention the long grind through scoping studies and feasibility studies during which the champagne tends to go a bit flat.

Not for the explorers the failure to meet forecasts for ounces produced, the pit wall collapses, the unexpected problems in a deep underground mine, not to mention disappointing earnings results (because they have none).

It’s all about speculation and there’s nothing more wonderful than the share price graph inching (or bounding) upwards and upwards. Until it doesn’t.

As one analyst put it this week, the precious metals action is all about FOMO (fear of missing out), not fear. And that goes both for the retail share speculator looking for a 10-bagger and a so-called sophisticated investor taking a healthy slice in a placement to fund an initial drilling program.

So far, no roadblocks for gold and silver

Fortunately, at least for precious metals investors, the world seems to be going to hell in a handbasket.

That gold has taken off to such an extent was no great surprise, but until a short time ago there were doubts as to whether silver would also get a lift from global worries about economic recessions, depressions, collapse or economic Armageddon (take your pick).

Now we know the answer: silver is still (at least, partly) a precious metal. And, with all the forecasts of its demand-pull in the future from solar energy equipment, its industrial aspect will not be a drag.

COVID-19 has certainly had its plus side for silver.

Many silver mines and exploration projects have come to a halt in Mexico and Peru due to the pandemic. Deaths in Mexico have now surpassed the numbers in Italy and this month Pan American Silver placed two Peru operations on care and maintenance as some of its workers tested positive.

Now we have reports that the US Mint is reducing the volume of gold and silver coins being issued as takes steps to prevent the virus from spreading among its employees

News reports suggest these measures will probably slow coin production there for the next 12 to 18 months.

Moreover, it is reported that the Mint’s plant can no longer produce gold and silver coins in parallel so there will be alternating shortages of the two products.

Gold beats silver for stock investment opportunities

The problem is that you can count on the fingers of one hand the pure silver plays on the Australian Securities Exchange — and it is not all that great on the Toronto or New York bourses either.

Additionally, some big base metal mines producing silver as a by-product have a lot more market share than any juniors

The Cannington lead mine in Queensland owned by South32 (ASX: S32) — market capitalisation $10.8 billion — last year produced 12.2Moz of silver, or 6% of the world’s supply. It is the biggest, and lowest-cost, silver producer in the world.

With gold, though, you are spoiled for choice.

Producer numbers are growing, but in that sector the capital gains for investors can’t match the hot end of the speculative junior one (and the dividends paid are not exactly keeping up, and there are plenty of producers who don’t even pay them).

There was a description this week of gold being “an orderly bull market”, which it does seem to be.

The rise in the metal’s price has been gradual over a sustained period, while silver’s rise has borne more signs of turning on a dime.

But the gold share bull market at the junior end certainly cannot be described as orderly, yet there is every sign that gold is the place to be in the mining business right now.

At the moment the staggering debt now being created around the world by central banks must, at some time, sink the value of fiat money.

Ten-dollar notes can be printed without restraint until, like in Weimar Germany, you have to overprint them as $10 million notes.

You can’t print gold or silver.