The silver price has been on a rocketship higher. It’s up 85% so far this year, more than gold, as investors look to snap up the precious metal. In the stock market, there are FTSE shares that have a reasonable correlation to the price of silver. Here are a couple that investors might want to consider.
If we’re talking silver, it’s hard not to refer to Fresnillo (LSE:FRES). It’s the largest primary silver producer listed in London and part of the FTSE 100.
The stock is up a whopping 290% in the last year, driven in a large part by the jump in both silver and gold prices. Their output is heavily skewed towards silver, so any increase in the silver price tends to flow through strongly to revenues and margins. Given that the fixed costs of production can be covered at a much lower base metal cost, any bump in silver above that helps to count towards higher profit.
Of course, variable costs (energy, labour, transport) can move against Fresnillo. If input costs rise sharply, the margin benefit of rising silver can be partially offset. This is a risk going forward, but given the sheer scale of the move higher in silver prices, I don’t see it being a large problem.
Looking ahead, the benefit of the move in silver (which is still going) will likely only be fully realised in the Q4 results or even well into next year. Therefore, when investors see how this price move translates into profits, the stock could move even higher still.
Some investors might consider iShares Physical Silver ETC (LSE:SSLN). This is an exchange-traded commodity (ETC) product issued by iShares, which gives investors direct exposure to the price of silver, without them having to buy or store physical silver themselves.
Over the past year, the stock is up 59%. Each unit in it represents a specific quantity of silver. The silver is stored in allocated form in London bank vaults, under custody agreements. Therefore, the price of the stock closely tracks the underlying price of silver, minus a small management fee.
Some find this appealing as there are no company-specific factors that could distort the price. With Fresnillo, even though silver has done well, the stock could drop from mining accidents or other risks. With iShares Physical Silver, it doesn’t have these concerns. However, it does come with other points to remember. For example, there’s no yield, and no dividend is paid. It also just tracks the silver price, so it doesn’t provide exposure to gold or other metals.
On balance, I think both listed stocks offer different ways of getting exposure to silver. I think both could continue to do well if the metal’s prices keep rallying, so are worthy of consideration.