Silver Wheaton Corp. (TSX:SLW)(NYSE:SLW) is down from its 2016 highs, but the stock has quietly regained some ground in the past month, and investors are wondering if a new rally is underway.
Let’s take a look at the streaming company to see if it deserves to be in your portfolio today.
Catching a tailwind
Silver Wheaton is up more than 10% in the past month.
What’s going on?
The stock tends to move in tandem with gold and silver prices, and the precious metals are trending higher after a tough slog in the last half of 2016.
Gold and silver initially rallied in 2016 amid reduced rate-hike expectations in the United States and fear surrounding the Brexit vote. Investors then shrugged off the Brexit concerns and once again focused on the Federal Reserve with an eye on 2017.
This led to gold and silver giving back a large part of the early 2016 gains, and President Trump’s win initially extended the sell-off.
But the mood has changed somewhat since the middle of December, despite the rate increase by the Federal Reserve, and there is reason to believe the upward trend might continue.
Trump being Trump
President Trump has started his time in office fulfilling promises he made on the campaign trail. Some pundits thought he would cool off a bit once he received the keys to the White House, but that has not been the case.
As a result, investors are getting a bit nervous that his aggressiveness towards trading partners could upset global markets, and that is driving some money into safe-haven assets, including gold and silver.
The Federal Reserve is expected to raise rates three times in 2017. At the February 1 meeting, the Fed stayed put, so there are some rumblings that 2017 could turn out to be a repeat of 2016, where the Fed was expected to increase rates three to four times, but only moved once.
Add to this some renewed fears about the Brexit, a banking crisis in Italy, and uncertainty surrounding French and German elections, and you get an environment that might be positive for gold and silver.
Should you buy Silver Wheaton?
Silver Wheaton isn’t a mining company; it simply negotiates deals with the miners to buy gold and silver by-product at their mines for very cheap prices in exchange for providing truckloads of cash to help the companies get their mines up and running.
This means Silver Wheaton’s investors get to benefit from rising gold and silver prices without taking on the direct risks associated with owning the companies that actually pull the metals out of the ground.
So, if you think the recent upward trend is the start of a new rally, Silver Wheaton should be one of your top picks in the sector.
At this point, however, I would keep the position small. It is too early to tell if the recent Trump fears will escalate, and the potential for three rate hikes from the Fed could prove to be a very strong headwind for the precious metals.
