Markets and Metals Navigator (August 9th, 2020)

Silver: The Big Beta Trade is Alive & Well

The momentum for gold and silver continues to gain steam, gold was up 3% on the week while silver gained an impressive 16%.

Capital 10X provided our readers the set-up for silver early in anticipation of current bull silver market. Our first installment of the Silver Insights Series (June 9th, 2020) highlighted the speed at which silver bull markets unfold.

There are two key reasons we believe the current silver bull market continues to have legs:

1. The gold/silver ratio is still in value territory at 73x, the historical 70-year average is 51x. This would imply a silver price of $40/oz (40% upside).
2. Silver is currently exhibiting a strong beta relative to gold. Over the last 20 years silver has had a beta of 1.3x relative to gold, over the last 2 months we’ve seen an acceleration in this beta – it now stands at 2.5x.

Record Inflows for Gold bullion ETFs

Excellent data from the World Gold Council highlighting Gold-backed ETFs and similar products (gold ETFs) recorded their eighth consecutive month of positive flows, adding US$9.7bn or 4.0% of assets under management (AUM).

Global holdings are now new all-time high of 3,785t with global AUM standing at $239bn.

Copper – The Catch Up Inflation Trade

This week Capital 10X released a powerful analysis looking at the opportunity in copper relative to gold and silver.

Historically gold, silver and copper have traded together (see graph below); this relationship exists because all three metals are hedges against inflation. Copper has lagged in this current inflation driven bull market for gold.

We analyzed which copper miners were the best positioned from a valuation perspective, both First Quantum (TSX:FM) and Sierra Metals (NYSE:SMTS, TSX:SMT) are the most attractive on a Forward Price/Sales and Trailing Price/Cash Flow basis.

Catching a Bid: Bitcoin & Ethereum

Bitcoin (BTC) has shown significant strength over the last several weeks and is now outperforming both gold and silver year-to-date, Bitcoin is up 63%, silver up 57% and gold up 33%.

Bitcoin is still 40% below it’s all time high of $19,345, and is gaining interest from institutional investors looking for ways to augment their current gold and silver holdings as hedges against inflation.

Ethereum (ETH) presents an interesting opportunity of investors looking for a catch-up trade to Bitcoin.  At the current price of $391, Ethereum is 70% below it’s all-time high of $1,385.

Sierra Metals is a market awareness client of Capital 10X.