What happened
The stock market's ascent might have stalled as investors determine what to make of rising numbers of confirmed cases of COVID-19, but the uncertainty has provided support for precious metals. The price of gold is near a five-year high at over $1,755 per ounce, while the price of silver crossed a key psychological level of $18 per ounce before receding.
The relative resilience of gold and silver prices has helped to lift shares of mining stocks in 2020. Today, shares of many smaller silver miners -- the companies that could benefit most from high silver prices -- are rising by double digits.
Shares of Alexco Resource Corp (AXU) rose as much as 13.6% today. That was followed closely by Fortuna Silver Mines (FSM -0.43%) and Hecla Mining (HL), which rose as much 12% and 10.9%, respectively.
Image source: Getty Images.
So what
Investors should consider two sets of factors affecting the rise of precious metals prices and the stocks of companies mining them: macro sentiment and company-specific developments.
On the macro side, gold and silver tend to be thought of as safe-haven investments, at least relative to the unsecured U.S. dollar and other currencies. That association is proving valuable during the current economic environment.
For instance, rising numbers of confirmed cases of COVID-19 increase the likelihood of future restrictions of movement, which would result in deeper economic pain and prolong the path to a recovery. Additionally, the longer the coronavirus pandemic drags on, the more likely it is for additional economic stimulus to be considered. As reported by Reuters, investors and traders are already beginning to consider what multi-trillion stimulus spending could mean for inflation -- and higher inflation might support higher precious metals prices.
On the company-specific side, investors need to consider what regional lockdowns and rising silver prices mean on a case-by-case basis. Many South American countries have not labeled mines essential businesses (forcing operators to idle production), while the United States hasn't been as strict (resulting in fewer disruptions to operations).
Consider that U.S.-based Hecla Mining has maintained roughly 95% of its output throughout the health crisis to date, whereas Fortuna Silver Mines had to idle its lucrative San Jose Mine in Mexico and halt construction of an important gold project in Argentina. Canadian-based Alexco Resources had to alter operations and development activities to comply with the country's relatively strict public health guidelines, although it doesn't currently produce precious metals.
Similarly, miners with relatively high production costs and all-in sustaining costs (AISC) might find a reprieve in current market conditions, but well-run businesses with lower operating expenses will perform even better. In the first quarter of 2020, Hecla Mining reported AISC of $11.06 per ounce of silver across all of its mines, while Fortuna Silver Mines reported AISC of $10.72 per ounce of silver at its San Jose mine.
Now what
Investors can expect the current economic uncertainty to continue for the foreseeable future. The coronavirus pandemic is likely to remain a global factor for at least the next year, while major governments are likely to take additional action to preserve and restore economic activity. Both factors could support higher prices of gold and silver. Of course, investors need to carefully consider the company-specific elements before blindly buying shares of trending companies.
