Gold priced in dollars and adjusted for inflation has broken out of a 43-year bear market, and this has implications for the price of silver and for gold and silver mining companies.
The move in the gold price, which touched its latest (as we write) all-time high in June, reflects several factors: the weak dollar stance of the Trump Administration, uncertainty around the state of the US government balance sheet and the risk-free status of US Treasuries; gold’s safe-haven status in a time of geopolitical and market uncertainty; and the outlook for real interest rates.
The dollar dropped almost 11% against a basket of currencies in the first half of the year, its worst performance since 1973. There is uncertainty over the long-term impact of Trump’s tariff and fiscal agendas which we do not think is going away anytime soon. Trump’s ``Big, Beautiful Bill,’’ which he signed into law on July 4, is projected to add about $2.4 trillion to $2.8 trillion to U.S. debt over the next decade.
In our view, we are witnessing an accelerated phase of the loss of purchasing power for government-issued money. The pound, yen and euro, like the dollar, have fallen in value versus gold in recent months.
Many people know about gold, but less about two related assets in the world of monetary metals: silver and gold and silver mining stocks. We are bullish on both, and both have been quietly generating healthy returns this year.
Silver shortage
Silver is a monetary metal and a slightly more volatile cousin of gold. It has higher beta, tending to follow gold price trends – with sharper rises and falls. What I especially like about the white metal is its structural shortage.
In addition to its role as a store of monetary value, silver has currency as an industrial metal, with the highest electrical connectivity properties of any element. Over 60% of the silver supply goes to industry use: electronics and technology including advanced batteries, solar panels, plasma screens and increasingly, medical and military applications.
Industrial demand for silver rose 4 percent in 2024 to 680.5 million ounces, reaching a new record high for the fourth consecutive year; silver demand exceeded supply last year, also for the fourth consecutive year, according to the Silver Institute.1
This silver shortage is manageable until it isn’t. There is no stockpile, as there is with gold. The price of silver has gained in line with gold over the first six months of the year (silver in dollars +27%, gold in dollars +26%2). Yet unlike gold, silver remains below its all-time high of $50/oz, reached in 1980. It will require additional capital flows to get there, and we believe we are starting to see signs of these.
Pumping cash
This brings us to gold and silver mining companies. These businesses tend to do very well in periods when the prices of the metals they mine are rising. At the moment, the miners are pumping free cash flow.
Like silver, the miners’ shares tend to be ``beta’’ plays, more volatile than gold, and they tend to move a little later in the cycle than gold.
Mining shares have advanced this year – the Van Eck Gold Miners ETF gained 54% in the first six months of the year, yet there have been ETF outflows in recent quarters, a demand trend which I find baffling. Profitability of mining companies is rising, and the shares are trading with attractive valuations: below their long-term average for price-to-cash-flow and price-to-net-asset-value, two metrics that we follow.
Mining company profitability outpaces shares, valuations below average
We expect to see the much anticipated arrival of long-only investors into the sector in the coming weeks – the companies are simply performing too well at the operating level to be ignored any longer. Likewise for silver and gold, where bullion ETF holdings are below the peak levels reached in 2020 (gold) and 2021 (silver).
Our strategy has had a bullish positioning on the sector for more than a year, and we think it makes sense to seek the potential returns offered by adding silver and mining equities to an allocation to gold.
Gold and silver are real money, they can’t be printed by governments and central banks, while silver and the precious metal miners are gold’s "higher beta’’ cousins. We think that gold, silver and gold and silver mining equities have an important role to play in a well-diversified investment portfolio, especially in the current market and macroeconomic environment.
Footnotes
1Source: https://silverinstitute.org/category/press-releases/. 16.04.25
2Source: Bloomberg, as at 04.07.25. Please note that past performance doesn’t indicate future returns.
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