The coronavirus pandemic is abruptly altering the trajectory of the United States economy. The latest jobs report shows 6.6 million Americans filed jobless claims last week, bringing the three-week total to 16.8 million. For perspective, there are 18.7 million people officially employed in the entire state of California.
The unprecedented surge in jobless claims reflects the economic uncertainty of the moment. Investors often seek out safe-haven investments during periods of uncertainty, which tend to include precious metals and gold and silver stocks.
Shares of Coeur Mining (CDE 6.67%) jumped 22% today, while many silver producers weren't far behind. Hecla Mining (HL 0.85%) rose 14.3%, First Majestic Silver (AG 3.06%) jumped 12.5%, and Pan American Silver (PAAS 1.65%) gained 11.5%. But investors might not be appreciating the unique circumstances of the coronavirus pandemic, which could keep mines in developing nations offline longer than expected.
Initially, investors weren't sure what to make of the coronavirus pandemic. When the first U.S. states told citizens to stay indoors and refrain from non-essential travel, investors went on a selling spree. The value of assets ranging from stocks to bonds to precious metals all declined.
While stocks and bonds remain volatile, gold and silver prices have gained back much of the ground lost in March. Gold prices are now at about $1,650 per ounce, which is close to highs last seen in 2013. Gold prices are 28% higher today than they were this time last year. Silver prices have been a little more stubborn, but have climbed from $12 per ounce in March to over $15 per ounce today. Silver prices were sitting near $18 per ounce in late February.
Investors are assuming higher selling prices will be great for producers. That could be true, especially for miners that generate significant revenue from gold production, but a little more nuance is required. Some miners have suspended operations at certain assets to comply with local government orders related to COVID-19.
Coeur Mining has made preparations to suspend operations at its coveted Palmarego gold and silver mine in Mexico. All other assets are operating at full capacity, and no cases of COVID-19 have been confirmed across the company's portfolio, but the business is ready to respond if necessary.
Hecla Mining recently announced the steps it has taken to respond to COVID-19. The company's three U.S. mines are deemed essential businesses and have maintained operations, but Casa Berardi (Canada) and San Sebastian (Mexico) have been temporarily suspended. Hecla Mining withdrew full-year 2020 guidance.
First Majestic Silver and Pan American Silver have both suspended or reduced operations in South America and Canada to comply with government orders. Each has implemented strict social distancing and sanitization measures to keep employees safe. Whether they can resume normal operations in mid-April when local quarantines end (or are scheduled to end, anyway) remains to be seen, but investors are hopeful that the businesses will capitalize on higher selling prices.
It takes U.S. government agencies weeks, or months in some cases, to compile, process, and report economic data. That suggests the true economic toll of the coronavirus pandemic won't be known for quite some time, although the numbers trickling in continue to paint a bleak picture. If the worst is yet to come, that suggests gold and silver prices could continue to rise if precious metals continue to be seen as safe-haven investments.
However, investors need to take into account the global nature of the coronavirus pandemic. Developing nations have fewer resources to deploy in their healthcare and financial systems than does the United States. Severe outbreaks of COVID-19 could keep mines in South America, Asia, and Africa offline for considerably longer than currently expected. Then again, severe economic pressures could force governments to ease restrictions on the mining industry to get people back to work. You can't mine gold over a conference call.
Long story short, this is a complex and unprecedented situation. There are a lot of moving parts. Investors need to evaluate gold and silver stocks on a case-by-case basis, and pay special attention to the geographic distribution of each company's assets, rather than hoping macroeconomic trends provide a tailwind for all.