(Kitco News) - Gold and silver prices continue to consolidate around critical psychological levels, but the uptrend remains on solid footing as investors look for value through the entire sector, including within the mining industry.
In a recent interview with Kitco News, Taylor Krystkowiak, Vice President & Investment Strategist at Themes ETFs, said that gold’s ability to hold near record highs and silver’s breakout rally above $30 an ounce this year is finally starting to attract the attention of generalist investors.
He added that these investors who missed the rally in gold and silver are starting to turn to the mining sector as there is still plenty of value in the equity space.
“Just using the price-to-book ratio as a rough proxy for valuation, going back to 2011, the price-to-book ratio of both the S&P 500 and the miners were about the same, trading around 2 times their value. Currently, the S&P 500 is trading at around 4.8, whereas miners are at around 1.9. So there's a significant difference between the market's valuation and miners,” he said. “That's a long way to say: I think that there is more to run in both the gold miners and also the silver miners.”
While investor interest has been lackluster in the mining sector, to say the least, Krystkowiak noted that it hasn’t stopped gold and silver producers from improving their balance sheets as they see impressive margins. During the first quarter, the average All-in-Sustaining Cost (AISC) for gold producers was around $1,358 an ounce, compared to August gold prices hovering around $2,350 an ounce.
“Miners are seeing a margin of nearly $1,000 an ounce,” he said. “It’s no surprise that finally, with these significantly wide margins, you're seeing these miners come back to life.”
Although investor sentiment remains low compared to interest in the broader S&P 500, Krystkowiak said it is slowly improving. He added that the silver market, with prices over $30 an ounce, is a particularly attractive sector for investors.
The renewed interest in silver comes at an opportune time for Themes ETF, a relative newcomer to the precious metals market. Last month, the firm launched a new silver-miners-focused ETF, The Themes Silver Miners ETF (Nasdaq: AGMI). The Firm’s gold-miners-focused ETF, Themes Gold Miners ETF (Nasdaq: AUMI), was launched in December.
Looking at the broader precious metals market, although gold and silver have seen significant gains in recent months, Krystkowiak said that he expects prices to continue to trend higher through the rest of the year.
Western investors have hesitated to enter the gold market as the Federal Reserve has maintained its aggressive monetary policies. However, Krystkowiak said that sentiment is shifting as economic activity starts to slow.
Looking through the second half of the year, Krystkowiak said he expects investors will continue to turn to gold and silver to hedge against stubbornly elevated inflation and weakening growth.
“There is a strong macro case for investors to hold broader commodities and miners as a stable store of value,” he said.
At the same time, Krystkowiak said that along with higher commodity prices, a correction in the broader equity market, as the economy slows, could push investors looking for value into the mining sector, sparking a sharper rally.
Along with a pickup in retail investors, Krystkowiak added that he also expects central banks to continue increasing their gold reserves. Unprecedented central bank demand is not only proving a solid floor for gold prices, but is also generating value for the mining sector, he said.
“Gold miners will continue to produce as much gold as they can to meet central bank demand,” he said.
While central bank purchases are eating into annual gold production, Krystkowiak noted that growing industrial demand continues to push the silver market into a supply deficit.
“If you look around, It feels to me like this may be the early innings of a resurgence in miners,” he said. “They're finally having their day in the sun.”
