Global Supply/Demand Deficit And Falling Gold:Silver Ratio To Boost Silver Price And Selected Silver Stocks

Apr. 23, 2018 9:52 AM ETAG, CDE, HL, PAAS, TAHO, WPM4 Comments6 Likes
Lawrence Williams profile picture
Lawrence Williams


  • According to metals consultancy GFMS in its latest Silver Survey, silver has now been in supply deficit for five years in a row.
  • World's Top 20 Silver mining nations tabulated.
  • North American silver stock recommendations.

Followers of silver will no doubt have noticed that on Wednesday (18th April) the Gold:Silver Ratio (GSR) came down below 80 and at the time of writing was positioned at around the 78.4 level having lingered at over 80 – indeed almost breaching 82 – for most of the year to date. The silver price itself rose back above $17 for the first time in some weeks. The late Ian McAvity – an astute follower of precious metals markets - used to say that if the GSR was over 80, it was time to buy silver and if the GSR fell to 40 or below, buy gold!

To be honest the GSR has not been below 40 for about 7 years – the paradigm may well have changed and we’d narrow the parameters somewhat keeping the top level intact but perhaps suggesting that a GSR of 60 or below may be the signal to buy gold over silver.

Out and out silver bulls would probably be horrified at this suggestion. They like to believe that the GSR will fall one day to 14-16, which they see as the historic ratio level. It was indeed so around a century ago – and extremely briefly in January 1980 when the Hunt Brothers nearly succeeded in cornering the silver market – that the GSR was last at this kind of level, but apart from the artificial 1980 spike down, the 14-16 GSR level related to a time when both gold and silver were considered monetary metals.

We would regard this kind of GSR target as totally unrealistic. Nowadays silver is largely an industrial metal - and some would even argue gold’s monetary status, but not us. In the words of Alan Greenspan speaking last year ‘Gold is Money’ repeating a mantra of top financial experts like JPMorgan that has stood the test of time.

Perhaps it is coincidence, but the sharp fall in the GSR on Wednesday coincided with the release of the annual Silver Report produced by one of the world’s top metals consultancies – GFMS out of London - in conjunction with the Silver Institute out of Washington DC. (The very comprehensive GFMS Silver Survey 2018 is downloadable in full for those with corporate email addresses. It's not available to webmail addresses).

The report notes that silver supply has now been in deficit for five successive years – a fundamental fact that perhaps had been disregarded by the markets, but that may well have given a fillip to the silver price vis-à-vis gold and led to the ratio coming back to a more reasonable level – although still not low enough in our view.

World top silver producing nations 2017 – (metric tons)



2017 output

2016 Output

% Change





































































































Rest of World




Global Total




Source: GFMS,

Given silver’s relatively positive fundamentals here are some silver stocks to look at as potential good gainers should silver prices rise further as we anticipate. As a guide, we are looking to a $1,450 gold price before the end of 2018 coupled with a possible fall in the GSR to 75 – we anticipate an even lower level but we’ll remain conservative. This would translate into a silver price of $19.33 an ounce, a 13% increase from where the silver price is at the moment.

Given their higher leverage, silver stocks should do rather better, although most silver is produced as a byproduct of base and precious metals mines, which are thus more dependent on other metals for their profits. We will thus only take into account primary silver producers with major quotes on North American markets for our principal stock analyses and recommendations – a very small listing - and these are as follows in order of 2017 silver output: Pan American Silver (NASDAQ: PAAS). Coeur Mining (NYSE: CDE), Hecla Mining (NYSE: HL) and Tahoe Resources (NYSE: TAHO).

We should probably discard the latter right from the start as it is mired in a dispute with the indigenous population over its biggest silver mine, Escobal in Guatemala, which has led to an ongoing shutdown of operations there.

A decent recovery in the stock price is almost wholly dependent on the miner being allowed to resume operations at Escobal, although should this happen, the resulting price rise could be big and rapid as Escobal is potentially one of the world’s biggest and most profitable silver mining operations. Keep an eye on the news here, but optimistic statements on the Escobal situation from the company itself should be viewed with some caution.

We are adding streaming company Wheaton Precious Metals (NYSE: WPM) and mid-tier pure silver play First Majestic (NYSE: AG) to our coverage list as they are both popular stocks with silver investors.

Pan American Silver is comfortably the largest of the North American headquartered primary silver miners with 2017 production at around 790 metric tons of the precious metal. It is perhaps currently the best silver play out there among the silver majors. It has been performing well in terms of reducing costs and debt and has good growth potential with plans to add around 5 million ounces (over 150 tonnes) in silver production over the next couple of years.

The stock had been somewhat depressed after what were seen as poor 2017 Q3 production figures but has since raised its dividend (which had dropped sharply in preceding years) by around 40% to 3.5 cents a share. If its production and profitability targets are met this could well rise further.

Chicago-headquartered Coeur Mining is another primary silver producer coming out of a depressed earnings period with 2017 results a huge improvement on the prior three years. 2018 could be even better with the Silvertip operation in Canada’s British Columbia now on stream and ramping up towards full production while Palmarejo in Mexico has been something of a game changer.

With capex coming down, CDE should be able to maintain positive free cash flow, which it achieved in 2017, and although AISC at most of its operations is predicted to rise, these could be more than offset by better metal prices and the projected reductions in capex. The stock price has been depressed since mid 2016 but should now be well on the recovery track.

Hecla Mining has performed reasonably well considering unionized workers at one of its largest primary silver mines, Lucky Friday, have been on strike now for about a year. Once the strike is settled, silver production, and earnings, should recover well but both sides seem to be intransigent in their positions – recently, the strikers have rejected a binding arbitration process. The mine is continuing to produce but at a hugely reduced level.

Operationally, HL has been successful in raising mill throughout at two of its other key properties – Greens Creek and Casa Berardi and if this can be maintained earnings will remain positive. The company’s cash position appears to be improving, presumably due to the huge reduction in input costs at Lucky Friday, and the stock has probably been oversold – even without Luck Friday back in full production. This could make HL something of a recovery stock.

What of other silver counters? Wheaton Precious Metals (formerly Silver Wheaton) has been in recovery mode since hitting a low point in early February. This is not a miner but a precious metals streaming stock with a strong position in the silver sector. As such it is a strong beneficiary of the recent rise in the silver price and should silver continue to advance will be a positive choice.

Of the silver mid-tier miners, First Majestic Silver has always attracted investor attention given that it claims to be virtually a pure silver play. All its existing mines are primary silver producers. However, it has recently entered into an agreement to acquire the Primero Mining ‘train wreck’ whose principal property is the San Dimas silver-gold mine in Mexico with the deal expected to close next month. If First Majestic can turn round the Primero properties, this could be a very positive deal, but it is a big ‘if’.

So far, after an initial decidedly adverse reaction to the deal, the AG stock price has been climbing and could be a positive performer, although Q1 2018 has been a particularly weak quarter in terms of production from its existing mines, should the silver price remain on an upwards path. AG CEO, Keith Neumeyer, is an outspoken silver bull and his price predictions, and perhaps over-positive outlook, should probably be ignored by investors. Even so, AG remains perhaps something of a speculative buy, but largely on the performance of its existing mines.

Silver is often referred to by traders as the 'devil's metal' due to its price volatility and instability. Silver counters, and the metal itself, are thus probably more speculative than gold and gold stocks but if silver performs as expected then returns could be very good indeed. At current prices, we don't see a lot of downside risk.

There aren't many primary silver miners to invest in and the investor should be warned that the silver futures market is small enough to be manipulated by the big money players, so it may be a case of second guessing these. But, as things stand, the stars do seem to be coming into alignment for the metal so we are looking to a price of $19-20 this year, and if this is achieved, the silver stocks could do very well indeed.

This article was written by

Lawrence Williams profile picture
Former CEO of Mining Journal Ltd. and subsequently Editor and General Manager of - a position relinquished in October 2012 to continue as a freelance writer. Graduate mining engineer from London's Royal School of Mines (part of London University) - has worked on gold, platinum and uranium mines in South Africa, copper in Zambia, uranium in Canada and holds a South African Mine Manager's Certificate. Joined Mining Journal originally as Financial Editor and worked for the company for over 30 years spending 13 years as CEO. Particular follower of the gold and platinum market and has written numerous articles on precious metals for Mining Journal and Mineweb and has also written for London's Financial Times as well as for other media and publications including SeekingAlpha. Is a regular writer for for . Also write articles for U.S. Gold Bureau.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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