The last few days have shown that silver bullion and silver stocks are two different animals. On Friday, February 7th, Silvercorp, a Chinese silver miner popular with American and Canadian investors, dropped like a rock losing almost 25% on the day. Other major silver equities were off 10% or more with the likelihood that more weakness was coming. Silver stock investors, unlike silver bullion investors, apparently saw the coronavirus as a severe threat to industrial demand for silver. However, if the world economy stumbles, the demand for copper, lead and zinc will slow and the production of silver as a byproduct to those metals will fall as well. It’s not likely that the industrial users of silver will cancel orders for the metal when they know that it’s only a few months to spring and the end of the cold and flu season. Nor would they mind building a stockpile of this critical metal.
It’s important to remember that silver, in addition to being an industrial metal, is a monetary metal similar to gold. It’s a store of value and historically a medium of exchange and a unit of account. It was money for at least 2,500 years. While no longer used as money, it maintains intrinsic value and liquidity similar to gold and people hoard it during a crisis. So, while some investors sell silver stocks, other investors buy silver coins and bars. The worse the crisis, the more the demand for physical silver. If the coronavirus crashes the stock market, the demand for silver coins and bars will be so great as to lead to a shortage much like in the past. In a panic and crash silver stocks will, at least for a while, probably act more like the stock market while physical silver will act more like gold.