Exclusive interview and insight into investing in silver and the outlook for silver prices
We’ve covered investing in gold here on the channel in the past. In fact, even after prices have come down lately, gold is still up 30% since recommending it on March 20th.
But we haven’t talked nearly as much about the other darling of precious metals investors, silver, and I’ve gotten a lot of questions whether to invest in gold versus silver.
And researching the fundamentals here, I came across a graphic on Silver demand that blew my mind. It’s silver use in electric vehicles, a demand chart I found on miner First Majestic’s website, and the increase in consumption is pretty amazing here.
Now my background isn’t in materials or mining so I wanted to get an inside opinion on this, the fundamentals behind silver as an investment and how that rise of EV is affecting demand.
So I reached out to First Majestic Silver CEO Keith Neumeyer for an interview to get his insight into precious metal prices, that gold versus silver question, and what he sees in store for investors. We’ll look at that interview next but stick around because then I’m going to talk about how I’m positioning for a potential rise in silver and some of the stocks in the space.
Keith Neumeyer founded First Majestic Silver, that’s ticker AG on the U.S. exchanges and FR on the TSX, in 2002 after a career as a broker and working with several publicly-traded companies in the materials sector. The miner produces more than 20 million silver-equivalent ounces a year from three mines and has a market cap of $2.3 billion.
We're building a huge community on YouTube to beat your debt, make more money and start making money work for you. Click over to join us on the channel and start creating the financial future you deserve!
Join the Let's Talk Money community on YouTube!
Will Gold and Silver Prices Continue Higher?
[Watch the Interview for CEO Neumeyer's insight into the questions below]
Gold jumped above $2,000 an ounce for the first time ever this spring but has since given up about 5% and was down 9% from the peak at one point. Is the bull run in precious metals over? What caused the price in gold to fall so quickly?
Looking at a five-year chart of gold and silver prices, they tracked closely until silver started underperforming marginally in 2018. Then over the last year, since July 2019, the price of silver has been much more volatile relative to gold. Is there something that explains that initial divergence from ’18 to mid-19 and then the volatility over the last year?
Bank of America and GS both have targets for gold around $3,000 an ounce. Do you think that’s a realistic target for gold and what can take it to that point?
In that scenario, how do you see silver holding up against gold? Can it maintain a gold-silver ratio around 72-times?
One area I’d really like to talk about is silver’s demand in auto production, and especially in electric vehicles. I have a chart here that shows auto sector silver use rising from just over 5 million ounces in 2009 to about 40 million ounces last year. Now that’s still only about 4% of total demand around a billion ounces but some amazing growth. What do you attribute that growth to and will it keep rising to where it’s a significant demand driver for silver?
Looking through my notes, I see the company books 61% of its revenue from silver, well over the average of around 34% among peers. Is this strategic? How does being a better pure-play silver miner position the company?
First Majestic produces from three mines in Mexico and I see you’ve entered into a purchase agreement with the Springpole Project in Canada. How does the company plan on maintaining pipeline growth and how does the acquisition/purchase agreement strategy play into that?
Some great points. I want to thank our guest today, Keith Neumeyer, CEO of First Majestic Silver, ticker AG in the U.S. and ticker FR on the TSX.
How to Invest in Silver Right Now
I love using that gold-silver ratio as a trading strategy but right now, it's not really telling us much. The gold-silver multiple is around 72-times which is in the middle of that 100-50 trading range over the longer-term.
Much more interesting is the mining ratio Keith talked about, the fact that we are only mining silver at a 1-to-8 ratio instead of the geological availability of 1-to-16 with gold. That tells me silver production is lagging gold and could make the metal dearer for the markets.
We're already seeing it to a point with the deficiency in supply and demand. We're consuming a billion ounces of silver annually but only mining 800,000 ounces, leading to a deficit of supply. That could drive up the price of silver and help it break out from the 100-50 gold/silver trading range.
How to Buy Silver
The ways to invest in silver are similar to those of gold; primarily physical holdings, exchange traded funds or investing in the miners like First Majestic Silver.
Buying physical silver gives you the most direct exposure but can be very expensive with buy- and sell-fees of up to 4% per transaction and annual storage costs. That means you need the price of silver to rocket 10% just to break even on your investment.
The iShares Silver ETF, ticker SLV, is a less expensive way to invest in silver but still charges the annual expense ratio. You also get no return until you sell the investment, no dividend and no payout.
Like with gold, I prefer investing in the miners. During times of higher metals prices, stock returns on miners generally outperform the underlying metal because the company can use leverage to boost its return. Investor sentiment in metals prices helps to boost the shares further.
Beyond the return, investing in miners also yields a dividend you can collect as you invest. Not all miners pay a dividend but many will pay quarterly or at least offer a special dividend occasionally.
Check out First Majestic Silver, ticker AG, for a pure-play investment in silver and an investor presentation with a lot of great information on the coming silver boom. Watch the video interview to get CEO Neumeyer's unique insight into investing in silver.