Six Silver Mining Stocks To Beat The Market

After a four-year decline of 73%, silver is on a roll this year clocking a 25% gain so far. The precious white metal, currently at $17.32 an ounce, has even outshone gold’s 21% gain. Increasing safe haven demand due to a weakening greenback, slowdown in China, volatile equity markets and introduction of negative interest rates by several of the world’s central banks (including Japan) have turned the tables in favor of silver.

Rate Hike Currently Off the Table

The U.S GDP rose a meager 0.8% in the first quarter, the slowest pace in two years. The U.S. jobs market is starting to falter, as the economy created a meager 38,000 jobs in May, far below the consensus estimate. Nonfarm payrolls registered its lowest increase since Sep 2010.

The anemic numbers reduced the likelihood of a rate hike this month, which in turn bodes well for precious metals like gold and silver. A delay in raising interest rates elevates demand for these precious metals, which produce no income but rely on price appreciation to lure investors.

Brexit a Likely Driver

Silver prices are also gaining on the back of concerns about a potential British exit from the European Union. If U.K. voters decide on Jun 23 to leave the European Union, it would have a negative impact on economic activity and investor confidence.

Demand Poised to Grow

Silver has varied industrial applications and is thus driven by industrial demand. Industrial demand for silver is set to increase from 54% last year. The booming solar industry might even account for more than 13% of total industrial demand for silver in 2016. The demand from ethylene oxide producers is expected to jump more than 25% year over year.

Demand in jewelry fabrication is expected to increase by 5% and coin demand will be robust this year. Increased interest in safe haven assets will also drive physical silver investment demand. India will emerge as a major consumer driven by increased investor interest and growth in jewelry, decorative items and silverware fabrication.

Supply Remains Constrained

Global mine supply production is projected to fall 5% in 2016 – the first drop in global silver mine production since 2002. The soft price environment had deterred producers to invest in expanding capacity at existing operations. Moreover, silver scrap supply, which has been on the decline for several years, should further weaken in 2016. Going forward, global silver mine production is expected to slump through 2019 as primary silver production from more mature operations starts to meander.

Thus, we are looking at a potential silver deficit, which in turn provides a solid ground for silver price gains this year. Price appreciation will also be supported by a flight to safety amid volatile equity markets.

The silver mining industry currently has a Zacks Industry Rank of 33 out of more than 250 industries, depicting a favorable position. We believe investing in silver stocks now would be a prudent move given the tailwinds driving the precious metal. The six silver stocks selected here also carry a bullish Zacks Rank #2 (Buy).

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