Minutes from the Federal Reserve's mid-December meeting show that policymakers were determined to raise interest rates earlier and faster than expected in the last meeting. This, along with the balance sheet contraction policymakers would like to begin shortly after the first rate hike, will be done primarily to dampen the rapid rise in annual inflation, which was 4.8% above the Fed's 2% target in November.
But this is easier said than done. The decades-long downward trend in interest rates as well as the explosion of debt on companies' balance sheets means that many companies, including some of the largest ones in the nation, are no longer profitable and have come to rely on increasing levels of debt in order to remain solvent. Policy tightening could hamper the recovery of these "zombie companies" and cause major problems for the U.S. economy. The Center for Economics and Business Research said last week there is a chance that the U.S. economy will enter a recession between 2023 and 2024.
This scenario increases uncertainty, which is a matter of concern for investors, as it could correspond to higher volatility on the stock market. This effect is always difficult to handle, even for the most capable traders who normally know how to profit from it.
To reduce exposure to unexpected movements in the prices of securities, investors could seek protection in safe-haven assets against high volatility and any other form of uncertainty that the current macroeconomic situation may bring in.
Silver is popular for hedging strategies, so the silver demand could increase in the coming years. Silver futures maturing in March 2022 are currently trading at $22,163 per troy ounce, up nearly 80% since the start of the Covid-19 crisis.
Thus, investors may want to consider increasing their portfolio's exposure to the precious metal through U.S.-listed silver mining companies, as these stocks tend to do well when the price of the metal is on the rise.
Gatos Silver, Inc. (GATO, Financial) seems an interesting investment opportunity in this field, in my opinion, as sell-side analysts predict the stock price will rise more than 60% in the next several months. Analysts have also issued an overweight recommendation for this stock, meaning the stock is expected to outperform either the broader market or the silver mining industry.
Located in Greenwood Village, Colorado, Gatos Silver operates in a new mineral district in the southern part of the Mexican state of Chihuahua, which appears to be rich in silver and zinc. Here, Gatos Silver searches for silver resources to develop into recoverable reserves.
The company mined 5.3 million ounces of silver and 36.7 million ounces of zinc in 2021. These outputs are higher than the 2020 production of 4.2 million ounces of silver and 34.2 million ounces of zinc.
With the continued optimization of operations delivering record mining output thanks to higher-than-budgeted metals recovery, the company is strongly positioned to capitalize on silver and other metals as they trade higher.
For full year 2022, the miner targets silver production of approximately 7.4 million ounces at an all-in sustaining cost (after by-product credits) of between $16 and $17 per ounce of silver. The AISC should thus decrease by about 7% from its 2020 level.
The company needed a total of $75 million to meet its production and cost targets for 2021. As of the third quarter of 2021, the balance sheet looked well funded after the company paid off its $156 million term loan, which followed a successful $133 million public offering in July.
The stock doesn't look expensive as its share price of $9.74 at the end of Wednesday is significantly below the 50-day moving average value of $12.05 and the 200-day moving average value of $13.23.
The stock has a market cap of $677.52 million and a price-book ratio of 1.73 versus the industry median of 2.31.
The 14-day relative strength index of 34 says the stock is not far from oversold levels after dropping 31% over the past year.
