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Press release
17 Mar 2020 | By Ned Naylor-Leyland

Golden slumbers fill the air (for now)

The past few weeks have seen gold and silver mining equities mimic the depths of the 2008 equity market collapse. We are witnessing a full system deleveraging and liquidation event of biblical proportions.

 

Short of bandying around hypotheticals, it very much feels like nothing is off the table in terms of the potential reaction by authorities around the world. But what do we know for certain? 

Gold and silver miners have been hard hit by forced selling of large gold ETFs. And with a current Merian Gold & Silver Fund allocation of approximately 18% bullion, 42% silver miners and 40% gold miners, we too have borne the brunt.

The silver miners have been worst hit by this indiscriminate global deleveraging event but they also represent the best value; they are trading on historic-low NAV multiples just as operating costs fall (due to currency tailwinds) and energy prices collapse. The market has ignored that, by revenue, ‘silver miners’ constitute around 70:30 gold to silver – as such, we maintain that they represent a clear value opportunity on a relative and absolute basis.

Judging by the performance of gold and silver mining equities, the untrained eye would be forgiven for writing the asset class off as the single most vulnerable area of the global economy to COVID-19. In truth, though, gold and silver mining equities are just one of a handful of areas of the global economy enjoying upward revisions to their earnings. 

The sell-off has been indiscriminate and that is likely to remain the case until authorities come up trumps. But in the meantime, we are focusing on topping up positions in the highest quality gold and silver miners and awaiting the requisite policy foundations.

No other sector in the world, barring perhaps hand sanitiser producers, is making more money right now than silver miners. Yet the sector is down almost 50% year to date. When it snaps back, we will be well positioned to take advantage.

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