Why Did Silver Outperform Gold in 2016?



Silver shines brighter than gold

While the last two months of 2016 chipped away a large part of the gains made by precious metals, silver outperformed gold on a yearly basis. While gold prices rose 8% in 2016, silver prices (SLV) rose 15%, mainly because silver is usually a levered play on gold prices. This leverage could work to the downside if gold prices come under prolonged pressure after the Fed’s rate hike.

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Silver miner space

While silver prices rose 15% in 2016, depending on their leverages, silver companies have returned way more. Among these companies, Coeur Mining (CDE) outperformed its peers. Coeur rose 268%, while Hecla Mining (HL) and First Majestic Silver (AG) rose 177% and 123%, respectively. Pan American Silver (PAAS), and Tahoe Resources (TAHO) gained 123% and 7%, respectively.

Coeur and First Majestic are highly leveraged operationally as compared to their closest peers. They’re also relatively high-cost operators, leading to disproportionate gains.

In this series

The 3Q16 earnings season is over, and all silver miners have reported their earnings for the quarter. So now it’s time to find out which miners fared better than others. In this series, we’ll look at various factors that are affecting gold miners like Coeur Mining, Hecla, Tahoe Resources, Pan American Silver, and First Majestic Silver. These five companies make up 37.2% of the Global X Silver Miners ETF (SIL).

We’ll also discuss factors such as cost profile, cost reduction progression, production growth factors, and debt standing among miners. Finally, we’ll see how these factors have affected the stock performance under the current metal price environment. We’ll see which stocks are more levered to changes in precious metal prices.

Let’s start by looking at silver miners’ geographical exposure in the next part of this series.


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