BMO's Top Long-Term Silver Play As Market Heads To $20
(Kitco News) - The Bank of Montreal (BMO) is the second Canadian Bank has come out recently to support silver, saying the grey metal has more potential than gold in the long-term.
In a recent note, BMO analysts saidt they expect silver prices to rise to $20 an ounce, while gold will remain mired in its current range around $1,200 an ounce.
BMO’s long-term silver price target represents a gain of more than 17% from current prices. December silver futures last traded at $16.995 an ounce, down more than 2% on the day. At the same time December gold futures last traded at $1,278.10 an ounce, down 1.42% on the day.
The analysts also said that their top silver equity pick next year is Fortuna Silver Mines (NYSE: FSM, TSX: FVI). “Fortuna checks all of the boxes given its attractive valuation, a strong balance sheet, and its Lindero development project, which is set to deliver best-in-class growth,” they said.
For 2018, BMO said that it sees gold prices averaging $1,300 an ounce, while they see silver prices averaging $19 an ounce.
“In a world of low-interest rates, investment demand for silver has remained strong and trended upwards following the global financial crisis. Strong investment demand, coupled with expectations of renewed industrial activity demand, support our long-term $20/oz,” the analysts said.
The analysts said that they see silver as a leveraged gold play and see the same factors benefit gold boosting silver: low-interest rates amid rising global uncertainty. In 2018, BMO economists expect the Federal Reserve to raise interest rates to 2%. Currently, interest rates are in a range between 1.00% and 1.25%. At the current pace, the Canadian bank expects to see two interest rate hikes next year.
“The slow pace of rate hikes, coupled with heightened geopolitical uncertainty in the world, should continue to support silver investment flows,” they said.
Benefitting the silver market, the analysts noted that while demand is increasing, supply is falling. Last year saw silver production fall 0.6%, the first decline since 2002.
In the current environment, BMO sees six silver companies that have the potential to outperform within the sector: Fortuna, Bear Creek Mining (TSX: BCM) Pan American Silver (NASDAQ: PAAS, TSX: PAAS) Coeur (NYSE: CDE), MAG Silver (AMEX: MAG, TSX: MAG) and SSR Mining (NASDAQ: SSRM, TSX: SSRM).