The precious metals markets are heating up again amid a declining dollar and speculation that the Fed may pause on more interest rate hikes. Gold, which hit $2,045 an ounce last March before pulling back to $1,639 in early November, closed at $1,990 on Thursday and appears to be making another run at $2,000. Last week, Goldman Sachs raised its price target on the yellow metal from $1,950 to $2,050.
Meanwhile, silver is also on the upswing. The "poor-man's gold" had quite a run after sliding to about $12 an ounce at the start of the pandemic in March 2000, eclipsing $29 an ounce just five months later. By last September, it fell to about $18 and has had a wild ride ever since. In January, silver rose to about $24.50 before falling to just above $20 early this month. Since March 9, however, silver has again rebounded, rising 18% to close Thursday at $24.07.
Investor demand for physical silver also appears to be on the rise given the premiums for so-called "junk" silver -- non-numismatic silver coins minted in 1964 and prior. While the spot price of silver hovers around $24 an ounce, a $100 bag (face value) of junk silver, which contains about 71.5 ounces of silver, will cost you about $2,870; that equates to just over $40 an ounce. That represents a very hefty 66% premium to the spot price. By comparison, at year-end 2021, with silver at $23, junk silver was selling in the mid-$29 range, representing a 29% premium.
I retain silver exposure via the closed-end fund Sprott Physical Silver Trust (PSLV) . This was my top pick for 2022, which, while up just a measly 3% for the year, outperformed the stock and bond markets (a very hollow victory to be clear). PSLV is flat year to date and trades at a 1.8% discount to net asset value (NAV). The trust currently holds nearly 173 million ounces of silver, and each share of PSLV represents 0.3515 ounces of silver.
The potentially interesting twist to this fund is that shareholders can redeem shares for physical silver. The minimum redemption is steep: 10 1,000-ounce bars, which would equate to about 28,450 shares of PSLV, so redemption is off the table for most investors. However, the notion that redemption is an option, along with the current discount to NAV, still makes PSLV an interesting way to obtain silver exposure without buying the physical metal.
Investors should be aware that neither gold nor silver is an investment, per se, but rather are hedges against uncertainty. Given the recent price action, metals markets are signaling that uncertainty is on the rise.