By Sean Williams
It's been an extraordinary year to be an investor. In just seven months we've witnessed the worst two-week start to a new year in recorded history, and also the most voracious intraquarter rally in the S&P 500 to finish back in the black since 1933.
But the year really belongs to precious-metal and mining investors, who've turned out to be the surprising winners. After a multiyear downtrend that began in 2010 for silver and 2011 for gold, both metals have made resounding comebacks in 2016. Spot gold prices are higher by approximately 25% year to date, while spot silver is up an even more robust 44%. Silver has a tendency to follow the movement of gold, although it's a more thinly traded metal and tends to be a bit more volatile.
The gains we've witnessed in underlying metals have sent mining stocks soaring. All 22 gold miners with a market valuation of $300 million or more are higher this year by at least 38%, with 16 of those 22 up by more than 100%. The story is the same for silver, with all six mining companies specializing in the lustrous metal up well over 100% for the year.
Secondary reasons why gold and silver are soaring
A number of catalysts have favored gold and silver mining stocks, as well as the underlying metals they produce. For example, uncertainty seems to be the new norm, with Wall Street and skeptical investors just waiting for the proverbial next shoe to fall. Britain's decision to exit the European Union could be one such event that adversely impacts growth in the U.K. and EU in the upcoming years; no one is exactly sure what will happen, considering that there's no precedent for such a move. Uncertainty has also reared its head domestically, with wild jobs figures and weaker-than-expected GDP growth.
Supply and demand is another reason spot metals prices have rallied. They can always rally for emotional or irrational reasons, such as when they spike during rapid stock market corrections. However, metal prices also tend to be driven by the traditional fundamental metrics of supply and demand. Mining companies have really pared back production in recent years, in favor of prudently expanding only their most profitable, lowest-cost mines. What that has done is slowed production growth, at a time when demand -- for both silver from the solar industry, and gold from central banks and investors -- is soaring. As long as demand remains strong, spot gold and silver should have some form of pricing support.