Silver Selloff Irrational; Fundamentals Support Higher Prices – Randy Smallwood

Neils Christensen  

Thursday May 11, 2017 12:00

(Kitco News) - Within the past month, silver has gone from being one of the best-performing assets in financial markets to giving away almost all of its gains this year, but one mining executive remains optimistic on the precious metal during this volatile period.

July Comex silver futures last traded at $16.265 an ounce, up only 3% from the low seen in December. Last month, silver hit a five-month high at $18.585 an ounce, a gain of almost 18% from last year’s lows.

In an interview with Kitco News, Randy Smallwood, chief executive officer of Wheaton Precious Metals, said that despite the selling pressure, he sees potential in the long term. The streaming company formally known as Silver Wheaton officially changed its name Wednesday. The company is expected to trade under the ticker WPM on the New York Stock Exchange and the Toronto Stock Exchange by May 16.

While the company has changed its name to reflect its more balanced precious-metals portfolio, Smallwood said that he would still prefer to be in the silver market. Although silver can outperform on the downside, it can also outperform on the upside, he said.

“I would rather have more silver exposure but there isn’t a lot of opportunities in silver. We are finding better opportunities in other precious metals,” he said.

The lack of growth in silver mining is one of the main reasons why Smallwood said he is bullish on silver.

“Every year we are seeing less and less production and more and more demand. Because of the fundamentals in the marketplace, the silver price should be much stronger than it is,” he said. “We think it is only a matter of time before the market focuses its attention back on these fundamentals.”

Smallwood’s comments come on the same day the Silver Institute published a report highlighting a drop in silver production in 2016, the first drop in 14 years. Smallwood said that this is only the start of what is going to be a growing trend.

“We think silver production is going to drop for the next four or five years at least,” he said. “There is just no investment going into developing new projects. There is not a lot of greenfield exploration happening and we don’t really see anything that will be the next major source for silver.”

While the selling previous in silver and gold appears to be irrational, Smallwood said that it isn’t surprising. He explained that the precious metals are reacting to continued strength in the U.S. dollar.

U.S. President Donald Trump continues to push his tax reform and deregulation policies, which is positive for the U.S. economy and the U.S. dollar; however, Smallwood said that he continues to doubt whether these proposals will actually result in legislation. Even if they are all passed by Congress, the lower revenues and increased spending will lead to higher debt loads.

“There is a large segment betting on a stronger U.S. dollar but ultimately I think that is misplaced faith,” he said. “We have seen a lot of U.S. dollar-friendly proposals, but we haven’t any real plans behind them.”

In the current environment, Smallwood said that he is expecting to see higher volatility in prices of precious metals, but markets will remain relatively range-bound until fundamentals come back into focus.

Earlier this week, Wheaton Precious Metals reported positive first-quarter earnings as a result of higher production of gold and stronger prices. The precious-metals streaming company reported first-quarter production of 6.5 million silver ounces, down 14% from 7.5 million in the year-ago period. However, gold output rose 37% to 84,900 ounces from 61,900 ounces. Average realized prices per ounce sold in the first quarter were $17.45 for silver and $1,208 for gold, representing year-on-year increases of 19% and 3%, respectively.