Disseminated on behalf of Guanajuato Silver, see disclosures at bottom of page.
It’s hard to find a brighter outlook in the metals & mining sector, or any sector, than for silver (“Ag“). That’s why Ag is +125% in the past year. Gold (“Au“) is (also) in a bull market, +152% over the past four years.
The Ag market is in its sixth consecutive year of mined deficit. COMEX inventories are down over 70% since 2020, creating the ominous threat of physical shortages in select industries/countries. Of course, far more likely than a shortage is simply higher prices.
Industrial demand exceeds 65% of total consumption (up from ~50% 5–10 years ago). Ag is in ~10,000 applications, the second-most varied usage of any commodity after oil.
Demand from solar, EVs, AI infrastructure, National Defense, robotics, medical applications, telecom, etc. is forming a structural base that won’t be meaningfully eroded by substation to more affordable materials.
Ag “thrifting”, (using less Ag per unit when possible), is happening in solar panels, a major industrial end use, but the number of panels continues to soar, and thrifting has its limits.
Substitution is not realistic for the most critical high-tech, (especially military) applications where Ag’s superior electrical/thermal conductivity, strong resistance to oxidation, and unmatched optical reflectivity reign supreme. End-users are willing & able to pay up.
In some products, like EVs, Ag cost per vehicle is a tiny portion of total cost, leaving OEMs unworried about rising prices.
As the world is understandably focused on the Middle East, readers should consider an important second-order ramification. Oil/gas/diesel prices will remain higher for longer.
This increases demand for non-fossil fuel power, most notably solar & nuclear. To be clear, it’s not just higher prices, but expected high volatility in fossil fuels, AND potential shortfalls or supply chain disruptions. Inflation is coming, typically bullish for precious metal prices.
In looking at the Top-10 Ag producing countries, 40% (China, Bolivia, Russia & Kazakhstan) are places with elevated risk profiles, especially for Western countries to rely on. N. America is one of the best places on earth to source Ag.
Readers are reminded that in Jan-1980 the inflation-adj. all-time-high for Ag hit ~$210/oz, long before ubiquitous solar power, EVs, smart phones, and other high-tech gadgetry. Today’s price is ~64% lOwer than the ATH. Think about that for a moment…
Bullish monetary conditions — falling real rates, dollar weakness, and fiscal expansion — reduce the opportunity cost of holding Ag, boosting its safe-haven appeal.
Forecasts as of mid-May for the next 6-12 months cluster around $70–$120/oz, with select bull cases above that. Yes, a wide range, the Ag price is very volatile.
BMO is calling for $160, Citi sees $150 in a possible, “physical supply squeeze”, and Bank of America $135 to $309/oz! The BofA target is based on Au:Ag ratio compression, $135 derived from the 2011 ratio low of 32:1, and $309 from the 1980 extreme of 14:1.
To be clear, I’m happy with Ag in the mid-$70s. One should never rely on higher commodity prices to justify an investment. Unlike for Au and copper, with over 1,000 producers, developers/explorers, there are fewer than 50 Ag-heavy names.
Switching gears to Au, where there are more data points than for Ag, look at the following table of top quartile targets.
Importantly, the factors that launched Au/Ag higher remain in place. Central bank buying — especially by China as it slowly but surely exits U.S. treasuries — paused briefly in some countries, but is picking up once again.
Other key points include the related factors of extremely high debt levels (globally), currency debasement and rising inflation rates. Precious metals are stores of value & inflation hedges at a time when global debt levels are at extremes, with no end in sight.
Europe is on a spending spree to beef up military defenses. The U.S. has $39 TRILLION in debt, or is it $40T?!? Central banks are likely to continue stacking Au!
M&A is starting to takeoff, G2 Goldfields is being acquired for over C$500/oz in the ground, and Agnico Eagle announced a takeover of Rupert Resources at ~C$600/oz. Both targets are PFS-stage, years from production.
I believe it’s reasonable to reach out on the risk spectrum to high-quality explorers / developers in a bull market like we’re in now.
However, on a risk/reward basis, producers that are — 1) growing production, actively exploring, and/or making accretive acquisitions, 2) generating ample operating cash flow, 3) and are prime takeover targets — are less risky, but still have compelling potential.
Readers are encouraged to do their own back-of-the envelope math to envision how profitable Ag-heavy produces could potentially be this year and next.
One could crunch the numbers with Ag Eq. all-in sustainable costs (“AISC“) ranging from US$20 to $35/oz in 2H/26, and Ag prices from US$60 to $120/oz. Au producers have similar metrics. In the mid-$70s, primary Ag producers are generating Nvidia-like profitability.
Yes, Ag/Au prices could fall, causing all Ag/Au stocks to decline, but there’s ample room for producers to remain robustly profitable at lower prices. For instance in the above chart, 50% EBIT at $70/Ag Eq. oz, (~20% below the current level) and AISC of $35/oz.
Note, Ag at $76 is -37% below January’s high of ~$122/oz. While this does not mean Ag will necessarily climb through $100/oz again, it would hardly be a shock if it did.
Finally, growing Ag-heavy producers in N. America, companies like Guanajuato Silver (TSX-v: GSVR) / (OTCQX: GSVRF), are particularly well positioned. Readers can learn more about Guanajuato Silver here…
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