Why is the Silver Mines (ASX:SVL) share price climbing 7% on Thursday?

What could be driving the silver pure-play's upside today? We look at some possible factors

| More on:
two colleagues high five each other as they sit side by side at a long desk in front of their laptop computers in an office environment.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Silver Mines Limited (ASX: SVL) share price is gaining ground this afternoon, currently up 7.3% at 22 cents.

There's no price-sensitive information out of the precious metals company's camp today. Therefore, it's worthwhile considering what forces may or may not be influencing its price action.

Why is the Silver Mines share price charging higher?

In the absence of any market-sensitive information today, we have to examine what's happening in the underlying commodity markets.

Given the company is basically a silver pure-play, it's wise to see what's been happening with gold's grey cousin lately.

After a strong rally in calendar year 2020, silver pricing has been volatile lately and largely traded sideways until June. After that, it started marching down the steps to hit a new low of US$21.513/t.oz on 29 September.

From then silver pricing has made a sharp recovery and is charging back northwards with authority.

In the two-or-so weeks since the move in silver began, it has climbed 13.5% to now trade at US$24.41/t.oz. It's showing no signs of slowing down either, with another 0.6% gain so far today.

As long-lasting inflation poses a threat to the global economy, investors tend to flock to asset classes that offer safety and act as a hedge against inflation.

In this "flight to quality" as it is known, investors tend to gain exposure to commodity classes such as precious metals. These have proven to be reasonable and effective protection against currency debasement and asset price inflation over time when included in one's portfolio.

What else could be at play?

Silver Mines is an ASX resources share that produces a commodity – in this case silver – and therefore, it is considered a price taker on the metal.

That means it must accept the going prices in the markets it sells into, which are often dictated by the unseen hands of supply and demand (among others).

As such, its share price can and does fluctuate with volatility in the broader commodity markets. So, when silver pricing begins to break out or crash, we can expect similar activity in the Silver Lake share price.

The correlation/causation effect is more apparent when examining the price history of both assets. We can see they move largely in unison, with the precious metal leading the Silver Mines share price.

And also given silver has hit new highs each day of this week, including today, it stands to reason this correlation effect has spilled over into Silver Mines' hemisphere.

Silver Mines share price snapshot

The Silver Mines share price has struggled this year to date, despite strengths in its underlying markets. It has posted a loss of 6.5% since January 1 and is trading flat to its share price 1-year ago.

These results have each lagged the S&P/ASX 200 index (ASXL: XJO)'s return of around 19% in the same time.

The author Zach Bristow has no positions in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Share Gainers

asx share price boosted by us investment represented by hand waving US flag across winning athlete
Best Shares

Here are the best-performing ASX 200 shares since the US election result

We reveal the 10 ASX stocks that have had the highest share price gains since the US Presidential election.

Read more »

a man sits back from his laptop computer with both hands behind his head feeling happy to see the Brambles share price moving significantly higher today
Industrials Shares

Up 39% in a year, is there more growth to come for this ASX 200 share?

IML Equity Analyst Josh Freiman shares his views on a major ASX 200 industrial stock.

Read more »

A young women pumps her fists in excitement after seeing some good news on her laptop.
Share Gainers

Why Catapult, Flight Centre, Nufarm, and Xero shares are storming higher today

These shares are having a strong session on Thursday. But why? Let's find out.

Read more »

drug capsule opening up to reveal dollar signs signifying rising asx share price
Healthcare Shares

3 ASX healthcare shares going gangbusters on Thursday

Investors are sending these ASX healthcare stocks soaring today. But why?

Read more »

A young man talks tech on his phone while looking at a laptop. A financial graph is superimposed across the image.
Share Gainers

Here are the top 10 ASX 200 shares today

The ASX 200 made it three-for-three losses in a row this Wednesday.

Read more »

A young woman wearing overalls and a yellow t-shirt kicks one leg in the air showing excitement over the latest ASX 200 shares to hit 52-week highs
Share Gainers

Why Brickworks, James Hardie, Megaport, and OFX shares are charging higher today

These shares are having a good time on hump day. But why?

Read more »

Fancy font saying top ten surrounded by gold leaf set against a dark background of glittering stars.
Share Gainers

Here are the top 10 ASX 200 shares today

ASX investors endured another day of selling this Tuesday.

Read more »

Man pointing at a blue rising share price graph.
Technology Shares

Guess which ASX 300 tech stock is already up 64% in November!

The ASX 300 tech stock is surging higher this month. But why?

Read more »