The price of traded on multi-year highs. It's about $ 27 an ounce at the time of writing. The market volatility of the past year has initially catapulted, an asset considered a safe haven. Soon, silver also moved higher into the race, putting both commodity and silver miners in the spotlight.
Yet recently, silver has even been gaining more attention than gold, as the term " short squeeze" has become the topic of discussion. Most of our readers will know that it refers to a situation where a short seller has to close the open position by buying back the underlying asset, such as a stock or an exchange-traded fund (ETF).
If the price of the underlying asset moves (quickly) higher, the short seller may be forced to close the trade. In this case, the asset buyback exacerbates the rise, leading to erratic price volatility in the short term.
For example, earlier this year, both GameStop (NYSE 🙂 and AMC Entertainment (NYSE 🙂 reached significant highs during trading sessions identified by many analysts. on the Reddit community and squeeze short. But these weren't the only stocks to see a price increase.
One of the following targets for a short squeeze was silver. As traders switched from AMC and GME to the shiny commodity, the price of silver initially rose from $ 25 to just under $ 30, the highest level in nearly eight years.
Hochschild Mining Weekly Chart.
With the rising silver price, stocks such as Fresnillo (LON 🙂 (OTC 🙂 and Hochschild Mining (LON 🙂 (OTC 🙂 started to rise as well. Both companies mine silver and gold.
We have recently been covered by member Fresnillo one of the best performing members of the leading UK stock index in 2020. In the past year, FRES shares have returned about 57%. However, year-to-date (YTD), the stock has fallen about 8%.
Today we're introducing member Hochschild Mining to see if the company deserves to be on investors' radar.
Hochschild Mining
Headquartered in London HOCM has mining operations in Peru, Chile and Argentina. Hochschild has been in the metal industry for about a century. It went public in 2006.
In the past 12 months, HOCM shares returned approximately 45%. However, YTD is down about 1.7%. On February 11, the stock closed at 221p ($ 3 for US stocks). The dividend yield is approximately 1.3%.
Most of the group's income comes from silver. But it also mines and sells some gold. According to interim results released in August, sales were $ 232 million. Profit before tax was $ 6.5 million. Cash and cash equivalents were $ 162.1 million. Management emphasized that the balance sheet remains robust.
In November, COVID-19 contamination caused the miner to temporarily cease operations at the San Jose mine in Argentina. According to a recent update, other mines are on track.
The expected price-earnings and earnings ratio of HOCM shares are at 13.23 and 2.32 respectively. We like the stocks around these levels. But Hochschild is expected to release the earnings on Feb. 17. We therefore wait to analyze the statistics before pressing the "buy" button.
Bottom Line
We believe there is more to the silver story than private investors who suddenly show interest. Rising industrial demand and its importance as a store of value could mean that the rise in the price of silver has legs.
The tech sector has a high demand for silver in most products, such as smartphones and computers. It is used in the medical industry, as well as in jet engines and solar panels. We expect stimulus packages for “green recovery” to help the metal further. The other big demand for silver is jewelry. Jewelry and buying from investors make up 50% of the demand for all silver.
Short squeeze doesn't necessarily have to send the silver to hit new highs. But the momentum seems to be in the raw material. Buy-and-hold investors can buy the dips in the metal or silver mining industry. However, short term traders should remember that both can be choppy.
Investors unwilling to invest capital in a single mining stock may also want to consider purchasing an ETF. Examples include:
Aberdeen Standard Physical Silver Shares ETF (NYSE 🙂 – 3.0% YTD increase;
ETFMG Prime Junior Silver Miners ETF (NYSE 🙂 – 2.0% YTD drop;
Global X Silver Miners ETF (NYSE 🙂 – decrease of 1.9% YTD;
Invesco DB Silver Fund (NYSE 🙂 – Up 2.1% YTD:
iShares MSCI Global Silver and Metals Miners ETF (NYSE 🙂 – 2.7% YTD drop:
iShares Silver Trust (NYSE 🙂 – up 2.9% year on year.
