Why precious metals stocks like Gold fields and Endeavour Silver rallied double digits

What happened

Shares of silver and gold miner Endeavour Silver (NYSE:EXK) jumped 16% at the open on Jan. 4, the first trading day of 2021.

Following close behind was a collection of precious metals miners, including AngloGold Ashanti (NYSE:AU) and Gold Fields (NYSE:GFI), both up just shy of 12%, and Harmony Gold Mining (NYSE:HMY), New Gold (NYSEMKT:NGD), and Fortuna Silver (NYSE:FSM), all of which were up roughly 10% in the first hour or so of trading. By 11:30 a.m. EST or so, all six of these stocks had pulled back some, but they each continued to cling to notable gains in the mid-to-high single digits or low double digits.

So what

The big story here isn’t shocking at all, that gold and silver were up in early trading. Since precious metals miners like these benefit from higher commodity prices, their stocks rose along with the metals they mine. Nothing shocking.

That said, there are two supporting factors to consider here. First, the ongoing headwinds posed by the coronavirus, particularly the new faster-spreading variant, have investors looking for safe haven assets. Gold and silver often fills that role.

Second, there’s a thought among investors that the incoming U.S. administration will implement government policies that prove to be inflationary in nature. Investors also look to precious metals as a hedge against inflation.  

IMAGE SOURCE: GETTY IMAGES.

That said, gold and silver aren’t exactly interchangeable. Nor do they trade in the same way. Silver tends to be more volatile than gold, for example. And while gold’s primary use is for things like investment and jewelry, silver is also used extensively for industrial purposes.

In early trading today, silver prices were up roughly twice as much as gold. Few miners pull just one precious metal from the ground, since gold and silver are often found together.

However, Endeavour Silver and Fortuna Silver, as their names imply, have a historically heavier focus on this metal. That’s a factor investors need to consider when looking at these miners, which at times can be more volatile than gold stocks.   

That said, on the news front, AngloGold Ashanti did announce that it completed the sale of its interest in the Sadiola Mine in western Mali on the very last day of 2020.

Prior to the deal closing, the company received a dividend of $8.2 million. Immediate proceeds from the sale came in at $25 million. An additional $1.8 million is expected due to higher cash balances at the sold asset than were expected at the time the sale was agreed to.

This brings up another issue that investors need to consider with all of these gold and silver miners — 2020 was a gangbuster year for precious metals.   

GLD Chart

GLD DATA BY YCHARTShttps://fd823a25cc3c391603c4cbd711c13cfc.safeframe.googlesyndication.com/safeframe/1-0-37/html/container.html

Gold, using SPDR Gold Shares as a proxy, advanced an impressive 25% or so in 2020. Silver, which as noted tends to be more volatile, rose 47%, using iShares Silver Trust as a proxy.

Those are pretty material advances, even given the coronavirus-stained backdrop of 2020, and were a driving force behind the extra cash at the mine AngloGold Ashanti sold.

While it’s nice to see gold and silver start 2021 on an up note, investors really shouldn’t be trying to time the ups and downs of either of these precious metals.

It’s likely a better long-term approach to view them as diversifying assets. And, after such a material run, those seeking a safe haven might even want to err on the side of caution and stick with cash instead.

Now what

One day doesn’t make a trend in any market, particularly in the highly volatile world of precious metals.

In fact, the only thing you can really count on when it comes to gold and silver stocks is continued volatility. Long-term investors looking at the price gains at Endeavour Silver, AngloGold Ashanti, Gold Fields, Harmony Gold Mining, New Gold, and Fortuna Silver in early trading today should probably take the moves with a grain of salt before making any decisions about their portfolios.

There are much bigger issues to consider here.

Gh Extractives

Ghextractives.com is an independent multimedia portal that seeks to provide credible information and news content to readers especially players in the extractive sector in Ghana, Africa and beyond. It also provides a unique platform for players in the energy sector to market their products and reach a wider audience

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