OptionEarner.com
The OptionEarner.com precious metal mining index indicator has recently fallen back slightly, but with a current value of 0.94 (after 0.98) it is still in the high neutral range. This means that the indicator is not signaling overheating, but a healthy consolidation after the strong previous increase.
It should be noted that we currently have limited access to some relevant data due to the shutdown in the USA. Complete and updated figures – especially from the area of positioning and market statistics – are not expected to be available again until January of next year.
The informative value of the indicator remains intact overall.
At the same time, precious metal prices continue to rise. Despite the strong price gains of the past months, there is no sign of euphoria in the sector so far – an important characteristic of a continuing constructive market environment.
Fundamental arguments continue to support rising prices
The fundamental situation for precious metal producers has improved significantly. Both gold and silver mines are currently benefiting from historically high profit margins. The combination of high metal prices, stable production costs and improved capital discipline leads to exceptionally strong free cash flows.
Silver in particular continues to have considerable potential:
- There has been a structural production deficit for around five years.
- The high delivery rates to the commodity exchanges for physically deliverable material increasingly indicate signs of scarcity.
- Silver is predominantly used industrially, and consumption continues to rise structurally.
- At the same time, silver is difficult to recycle as it is usually bound in very small quantities in end products.
Silver is indispensable due to its physical properties (highest electrical conductivity of all metals, very high thermal conductivity, strong reflectivity, antibacterial properties) – especially for future industries such as electronics, photovoltaics, electromobility and medical technology.
Corrections remain part of the upward trend
In the event of a further upswing, however, repeated, sometimes violent, trend-confirming corrections are to be expected. These pullbacks are typical of commodity markets and do not contradict the overriding trend.
The currently high volatilities are ideally suited in this environment for corresponding options trading, which not only enables attractive premiums, but also has a risk-reducing effect on the overall portfolio.
Classification of our precious metal mining index
Our analysis system combines ten differently weighted individual indicators, including sentiment indicators, market technical factors and the actual positioning of market participants. The indicator is used in particular for contrarian timing and helps to classify exaggerations at an early stage.
Conclusion: The current consolidation should be seen as constructive against the background of the strong fundamental development. The precious metal mining sector remains strategically attractive – especially with a view to silver, rising cash flows and increased volatilities.
