What happened
Another day, another wild ride for investors. As of 3:06 p.m. EDT, the S&P 500 was sitting at a loss of about 2.5%. That's relatively tame compared to daily movements of the last several weeks, but it's still a sizable drop. And that means gold and silver prices are rising higher.
While precious metals are generally perceived as safe-haven investments when markets are volatile, the relationship hasn't quite held up in recent weeks thanks to the surging strength of the U.S. dollar. That could change as the U.S. Federal Reserve opens the fiscal taps to feed growing international demand for America's currency.
Investors are preparing for a recovery in gold and (especially) silver prices in the coming weeks. Shares of Yamana Gold (AUY) rose as much as 16.7% today, while shares of Royal Gold (RGLD 1.34%) jumped nearly 14% and shares of Hecla Mining (HL 3.56%) gained almost 11%. Can these gold and silver stocks hold on to their gains?
Image source: Getty Images.
So what
Gold and silver have taken divergent paths in the last month. The price of gold has fallen 11% in the last 30 days, but is still sitting at a 12% premium compared to the year-ago market value. The price of silver has fallen 34% in the last 30 days and 20% in the last year, although it jumped 7% today.
The divergence is going to create some odd discrepancies in first-quarter and first-half 2020 operating results for gold and silver companies.
For example, Yamana Gold expected to grow full-year gold production 1% and silver production 8% in 2020 compared to last year. The company's original guidance is likely in doubt now considering it had to demobilize local employees and contractors at its all-important Cerro Moro mine in Argentina to comply with the government's response to the coronavirus pandemic.
Management said production will return to full capacity once the self-isolation period ends on March 31, but the mandate could also be extended. Nonetheless, investors swooped in to purchase shares and bet that the long-term potential of the company's precious metal assets remains intact.
Hecla Mining is a little more dependent on silver than the rest of the industry. In 2019, the company generated 58% of total revenue from gold sales and 28% of total revenue from silver sales. Investors can expect shares to swing with both gold and silver prices, but the stock might be a little more sensitive to movements in silver.
Meanwhile, Royal Gold is more insulated from the risks of mine development because it's a streaming company, but it's still exposed to swings in selling prices. The business is mostly dependent on gold, which comprised 80% of total revenue in the six-month period ending Dec. 31. Silver and copper were each responsible for 10% of revenue.
That structure should insulate the business from tumbling silver prices, although interruptions at the mines supplying the company's streaming interests could negatively impact the business.
Now what
Volatility is here to stay for the time being. Investors can expect that to be doubly true for gold and silver prices, although gold has been the more resilient precious metal of the pair. Prices of each metal are likely to respond to massive stimulus plans both in the United States and abroad, which will impact 2020 operations across the industry. Of course, investors still need to maintain a long-term mindset and monitor how or if the new economic uncertainty affects long-term plans of the companies they're invested in.
