Silver has a variety of uses. It is a major component in electronics as a conductor. It may also be used for medical purposes, like wound dressings. It can also be employed in the construction of green energy appliances, like solar panels and electric vehicles.
As both a precious and industrial metal, it is largely unique in the world, with a track record of limited supply and high demand. This can make silver stocks attractive investments.
What are silver stocks?
Silver stocks are publicly listed constituents of the stock market engaged in the exploration, mining and production of silver. They might also mine other metals, like gold.
Silver stocks are equities because buying them means buying shares in a company, not the raw material itself.
Most companies mining silver tend to be focused on specific geographical areas where it is in plentiful supply. The most popular areas of the world where silver is mined are Central and South America, especially Mexico, and parts of Russia.
Shares in silver stocks may be loosely correlated with the underlying silver price itself because this will largely dictate the value of a mining company’s silver assets. This is why production and output figures are so important in the context of company reports by firms mining silver.
While investors can gain exposure to silver through stocks, they can also purchase a variety of other products, both of a financial and physical nature. Aside from shares, these products include coins, bars, certificates and contracts in both the options and futures markets.
Top silver shares in the UK
While the mining of precious metals like gold and platinum is relatively popular across the world, the number of firms exclusively devoted to silver mining is quite limited. Aside from sometimes being discovered when mining other precious metals, the extraction of silver ore and its rock can cause many difficulties because of its weight.
There are, however, a few silver stocks listed on the UK markets. Furthermore, some features on both the FTSE 100 and FTSE 250 indices.
| Company | Description |
| Fresnillo (LSE:FRES) | Fresnillo is a UK-based silver and gold mining firm operating throughout Mexico. |
| Hochschild Mining (LSE:HOC) | Hochschild Mining conducts mining activities throughout Peru, Argentina, and Chile, and specialises in silver and gold. |
1. Fresnillo
Headquartered in Mexico City, Fresnillo is the largest silver stock in the FTSE 100 index and the biggest silver producer in the world. It listed publicly on the London and Mexican Stock Exchanges on the same day in 2008.
The company operates exclusively in Mexico, but it is undertaking exploration in Peru and Chile. Its business model comprises the exploration of land, development of mining capabilities, and extraction of silver. The metals will then be transferred to third parties for refining and smelting, then into the metals market.
It is currently focused on growing its exploration budget so that it can better understand the grade of silver within its projects. By 2025, it aims to have two development projects, Rodeo and Orisyvo, at the production stage.
It completed the construction of its Juanicipio plant in the final quarter of 2021 in a joint venture with MAG Silver. This plant is set in one of the most silver-abundant areas in the world. It is now operational and will ramp up silver production for the business in the years ahead.
Fresnillo is also environmentally aware, and throughout 2021, nearly half of its electricity came from renewable resources. It seeks to improve this in the future.
2. Hochschild Mining
Hochschild Mining is a UK-based precious metals firm mining both silver and gold. It joined the London Stock Exchange in 2006, but the company was founded in 1911. It is currently a constituent of the FTSE 250 index.
It operates in three countries in South America: Peru, Chile, and Argentina. The bulk of its mining activity takes place in Peru, where it has three of its four current operations, the fourth being in Argentina.
The oldest two current operations, San Jose and Pallancata mines began work in 2007. They are located in Argentina and southern Peru, respectively.
In 2021, the company implemented a mining plan for Pallancata that will guarantee its future use for at least the next two years. This is part of Hochschild’s long-term business model.
A major part of the company’s strategy is growth projects, of which there are currently three: two in Peru and one in Chile. The firm uses advanced expertise to discover new areas containing silver within long-term and familiar mining zones. According to its business model, it seeks efficiency in the development stages to operate and carry out mining activities.
Finally, it has developed a strong knowledge base for the extraction stage that is capable of dealing with the challenges posed by silver mining in remote areas.
What are the industrial uses of silver?
Beyond being an alternative store of value to gold and its use within jewellery, there are a lot of industrial use cases for silver. The list includes:
- Solder and brazing alloys
- Batteries
- Dentistry
- Medicine
- Glass coatings
- LED chips
- Nuclear reactors
- Solar panels
- RFID tags
- Semiconductors
- Water purification
What affects the price of silver?
Firstly, the silver market is significantly smaller than that of gold, resulting in lower levels of liquidity. Consequently, the changes in supply and demand for the white metal have a significantly higher impact on its price.
This ties into the metal’s industrial uses. Due to the larger number of applications, demand for silver is significantly correlated with economic and geopolitical landscapes. When an economic downturn occurs, demand falls, dragging the price of silver with it and vice versa.
Similarly, the sensitivity to supply also means prices are heavily influenced by mining activity. When global miners of silver ramp up production, prices will fall the same way that they will rise when production increases.
The smaller-scale market also makes it far easier for traders to affect the price based on trading activity that’s largely driven by investment sentiment.
Lastly, just like gold, silver is a US-dollar-denominated commodity. That means silver prices are inversely correlated with the value of the US dollar. So, when the purchasing power of the US dollar increases, silver prices will fall and vice versa.
Are silver stocks more volatile than gold stocks?
Yes. Typically, silver is a far more volatile commodity than gold, which has historically been more stable. There are a few contributing factors behind this, including the previously highlighted drivers of silver prices themselves.
The reason why gold is more stable largely stems from its use as an inflation hedge, which artificially creates rising demand despite fewer industrial applications versus silver. This is especially true during periods of economic instability where investors, including central banks, rush to buy gold as a safe haven asset to protect their wealth.
What are the risks of investing in silver?
The risks of investing in silver stocks are similar to those of investing in gold stocks.
- Volatility – like most commodities, the price of silver is notoriously volatile and can result in heavy losses for investors if they buy or sell at the wrong time.
- Cyclical – demand for silver primarily stems from its industrial applications across various industries. However, the industrial sector is cyclical and can lead to prolonged periods of weaker silver prices.
- Currency – silver is a US dollar-denominated commodity, which makes it sensitive to shifts in the value of the US dollar that can adversely affect an investor’s portfolio.
- Liquidity – Some forms of silver, such as silver bullion bars and coins, can be illiquid assets, resulting in an illiquidity premium when buying or selling, harming an investor’s return.
Are silver stocks right for you?
Silver stocks can be incredibly volatile because the share price movement may be linked to the underlying price of silver. They may, therefore, not provide as consistent growth over the long term as more regular companies in market indices. When investing in silver stocks, it can be helpful to first gain an understanding of the factors and motivations that drive the silver price up and down.
While silver stocks can mirror the underlying silver price, this is not always the case. Public companies that mine silver are, after all, equities. When equity markets fall, there is no guarantee that silver shares will rise.
Although investors may see increased volatility in silver stocks, they can also play a critical role within a diverse portfolio. Generally speaking, they are a ‘safe haven’ during times of crisis and may rise when the market is going through an unpredictable or unstable period.
During inflation, silver stocks may also protect investors against the loss of purchasing power to some extent because silver is viewed as an alternative asset to cash. This means that silver stocks can help to balance a portfolio that is heavily populated by other sectors, like the technology and travel sectors.