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Silver Stock Investor Update

• Has Silver Reached a Cycle Low?

• Silver Technicals

• Silver Stock Portfolio Updates

October 19, 2021

Recent action in the silver price has permeated the holdings in the Silver Stock investor portfolio, with a

healthy bounce from a recent low. I’m not sure this is the start of a new rally phase, but it certainly has

the hallmarks of one.

As I detailed in my technical analysis, there are multiple indicators pointing to a new upward cycle for

silver and silver stocks. The fact that we are entering the fall season may also provide extra support for

precious metals buying.

What’s changed? Well, recent U.S. inflation statistics have once again been high, with the September

CPI reading at 5.4%. That makes the fourth straight month with inflation above 5%. 5.4% for the past

year is the largest year-over-year increase since January 1991. And it’s making the Fed’s “transitory”

inflation narrative less and less credible. It’s also bolstering the case for the Fed initiating tapering of its

bond purchase program before the end of this year. That triggered long-term treasury selling, which

caused rates to rise, as investors anticipate the taper.

The market is even starting to price in higher odds that the Fed will begin a rate-hiking cycle earlier than

originally expected for late 2022 – early 2023. It’s interesting to note that is typically a strong indicator

that precious metals will rally, as it’s definite acknowledgment by the Fed that it needs to counter inflation.

The thing is, higher rates are likely to lead to a broad market selloff, which could well cause the Fed to

balk at further hikes. If the Fed does in fact renege on tightening, that will signal the Fed’s unwillingness

to counter inflation. And silver and gold could then explode higher.

Here’s a look at silver price action over the past month.

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We know that silver investors have a tendency to buy and hold. Research shows that the largest Silver

ETF, the iShares Silver Trust (NYSE:SLV), has seen its silver holdings remain healthy despite ongoing

weakness in the silver price. This suggests that the selloff in silver prices of the last few months has not

affected the strongest holders of SLV. This is a phenomenon I’ve researched and written about before,

which I referred to as “Silver is Sticky Money”, based on exactly this kind of action in silver ETFs

worldwide.

In the October issue of Silver Stock Investor I delved into the topic of how Silver ETF demand is typically

not combined with physical silver demand by many industry observers. I think that’s the wrong approach

because we know Silver ETF demand is “sticky”, and because it’s such a significant demand factor.

That’s one of the major reasons spot silver prices need to rise to catch up to physical silver prices. They

will never match them because there are clear and practical reasons physical silver has additional built-in

costs. But right now, physical silver is still about 40% above spot prices, when normal premiums should

be closer to 15%. Spot prices would need to climb about 20% just to reach their normal levels at 15%

below physical prices. That would put spot silver at $28 right now, which is close to the highs of last year.

Either way, silver and silver stocks are exceedingly cheap right now. If you can muster a little contrarian

mindset, accumulating at current prices is very likely to pay off handsomely before long.

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Silver Technicals

The dollar was strong through September, likely in part on the back of weaker stock markets. That

strength may have peaked in the last week.

The chart of the US dollar index below shows that it may be backing off. Action in the RSI momentum

indicator suggests negative divergence, meaning the DXY was losing momentum as it reached its recent

peak. As well, the MACD has just rolled over, also suggesting a recent peak.

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The dollar was probably getting its cue from long-term treasuries, which have also seen strength in the

past month. This was likely as investors bought bonds as a haven from falling stocks.

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After testing and quickly bouncing back from the low end of its trading range near $22.50, silver has

managed to regain its 50-day moving average. We can see three distinct moves downward since June.

This type of selloff pattern often plays out this way, with the 3rd move down marking the final washout of

negative sentiment. The RSI has spent considerable time around the supporting 30 level, and once again

has rallied nicely to 55.

Though only slight, we see some upward bias in the RSI and MACD lows since early August. If silver can

hold around its 50-day moving average around $23 for a few days, it can build some strength for another

leg up. My first target would be $24, followed by $25.

Action in silver stocks as demonstrated by the SIL ETF also shows the sector has regained its 50-day

moving average. However, SIL fell well below its $38 - $50 range with the recent selloff.

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However, if we zoom in closer, we can see that the RSI managed to dip below 30 and quickly reverse

with the late September selloff. Here too, if SIL can hold for a few days above $38, then it could make a

run to $40 or $41, its previous peak.

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And lastly, let’s look at what the smart money is doing. The next chart, courtesy of Sentimentrader.com.

shows that silver hedgers, which is considered the smart money in futures markets, is very close to a low

short position. This suggests they feel there is very little downside risk in silver prices. So it’s very

possible we’ve seen the low for this current cycle.

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All of this points to very decent odds that silver and silver stocks could rally over the next couple of

months.

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Portfolio Updates

Endeavour (TSX:EDR; NYSE:EXK) reported Q3 production at 1,3M silver ounces and 10,541 gold

ounces, for silver equivalent of 2.1M ozs, reaching 6.1M ozs. for the first 9 months of 2021. Production

guidance has increased to 7.7 – 8.0 M silver equivalent ozs. due to strong performance at Guanacevi

from higher grades and tonnage milled. Bolanitos saw processed tonnage ahead but partly offset by

lower grades. El Compas had its final stockpiles processed after operations were suspended in August

as planned. Consolidated silver output was up 39%, and gold production up 3% over Q3, 2020. EDR is

performing well overall, though shares have become quite oversold. Attractive to accumulate on

weakness.

Gatos (TSX:GATO; NYSE:GATO) reported record throughput and mined tonnage from its 70%-owned

Cerro Lost Gatos mine in Q3. Tonnage mined exceed Q2 by 1.2%. The plant achieved record

throughput, exceeding Q2 by 1.5%. Silver production was about 20% lower than in Q2 due to lower

grades in mined ore from mine sequencing. Lead and zinc production were also lower, due to 5% lower

grades in the mined ore. Recoveries for silver, lead and zinc exceeded design and were similar to Q2.

Operations will have access to higher silver-grade production areas and should return to higher grades in

Q4. Full year guidance is for about 7.4 million contained silver ounces, which is slightly below previous

guidance, while zinc and lead production should be in the lower guidance range. Despite lower silver

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production, all-in sustaining costs have been managed lower to about $16 - $17 per silver ounce thanks

to higher by-product credits for zinc and lead. I see this as just a temporary rough patch, and expect

improved results going forward. GATO is attractive to accumulate on weakness.

First Majestic (TSX:FR; NYSE: AG) reported Q3 production of 7.3M silver equivalent ounces. This

consisted of 3.3M silver ounces and 54,525 gold ounces. Total production was up 14% overall, due

mainly to a 39% boost in gold production from Jerritt Canyon, Nevada. 1.4M ounces of silver were

withheld in inventory, as management expects low silver prices to bounce back. I see this as a wise

move, as it makes little sense to sell that silver at such depressed prices. The Ermitano deposit at Santa

Elena continues to stockpile higher grade material. Initial batch test processing should begin at Santa

Elena plant in the next few months. Jerritt Canyon continues to see major improvements, which required

a 14-day shutdown. About 30,000 tonnes of ore were stockpiled for Q4 processing. Like its peers, FR is

quite oversold, and attractive to accumulate on weakness.

GoGold Resources (TSX:GGD; OTCQX:GLGDF) reported full fiscal year production of 2.27M silver

equivalent ounces, consisting of 1.14M silver ounces, 13,477 gold ounces, and 470 tonnes of copper.

Parral generated over US$ 22M of free cash flow over the year. Much of this is getting plowed into Los

Ricos, generating growing value. 10 new drill results were released for the El Favor East zone, extending

it by over 450m. Highlights include drill hole LRGF-21-076 intersected 0.8m of 3,034 g/t silver equivalent

(“AgEq”). Drill hole LRGF-21-075 intersected 24.2m of 139 g/t AgEq, including 2.0m of 1,106 g/t AgEq.

El Favor East is becoming significant, with drilling reaching already 900 east of the original discovery.

There may be potential to bulk mine. GGD has remained exceptionally strong versus its peers, though it

too is attractive to accumulate on weakness.

Blackrock Silver (TSXV:BRC; OTC:BKRRF) released more strong drill results from Tonopah West,

including 4.1 metres grading 2,027 g/t silver equivalent (AgEq) (9.07 grams per tonne (g/t) gold (Au) and

1120 g/t silver (Ag) including a 0.9 metre zone grading 5,080 g/t AgEq (20.85 g/t Au and 2,994 g/t Ag)

from the high-grade Bermuda vein in Core hole TXC21-026. TXC21-027 intersected multiple zones in the

Merten vein including 1.5 metres grading 6.5 g/t Au and 592 g/t Ag or 1,242 g/t AgEq, including 0.7

metres returning 12.1 g/t Au and 1,095 g/t Ag, or 2,305 g/t AgEq. The resource definition program is

nearing completion, with a maiden resource expected for Q1, 2022. There will continue to be drill results

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over the next couple of months on 24 pending assays. BRC has also held up well versus peers, and it

attractive to accumulate on weakness.

GR Silver (TSXV:GRSL; OTCQB:GRSLF) completed an extensive IP and ground magnetic geophysical

survey. These connect the San Marcial and San Juan areas. This has allowed for new shallow drill

targets to be identified, and a better understanding of structural control and mineralized structures.

Figure 1 Magnetic Data, Chargeability, Resistivity and Geology Maps connecting the San Marcial,

GAP and San Juan Areas

GR remains very oversold and attractive at current levels.

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Sterling Metals (TSXV:SAG; OTCQB:SAGFF) reported its second group of assays from Sail Pond in

Newfoundland. Highlights include:

• 1,572 g/t Ag, 5.84% Cu, 29.2% Zn, 0.55 g/t Au, 7.8% Pb, & 2.47% Sb, over 0.34 m, within a

broader interval of 239.27 g/t Ag Eq comprising 0.1 g/t Au, 83 g/t Ag, 0.3% Cu, 0.53% Pb, 0.13%

Sb, & 1.48% Zn over 6.86 m in hole SP-21-023 beginning at 65.14 m downhole; and

• 190.94 g/t Ag Eq over 2.52 m, comprised of 70.27 g/t Ag, 0.29% Cu, 1.46% Pb, 0.02 g/t Au,

0.09% Sb, & 0.38% Zn, in hole SP-21-023 beginning at 115.88 m downhole.

Phase 1 drilling is now complete, with several more assays pending. Better understanding from current

results suggest several North Zone holes may have been drilled too far East to intercept the same argillite

contact that hosts most of the South Zone mineralization. Phase 2 will focus on the South Zone. While

these are still early days, I’m very encouraged by these initial strong results. SAG is attractive to

accumulate on weakness.

Zacatecas Silver (TSXV:ZAC; OTC: ZCTSF) said it had completed 4 drill holes on the eastern edge of

the Panuco Central vein, totaling 1,088m. All of these intercepted visible quartz-sulphide veins. 600m

drilling completed in 3 holes at the Tres Cruces vein system. The rig will be moved to San Gill for

exploratory drilling.

San Gill is located within the southern part of the main Zacatecas concessions, and demonstrates robust

exploration potential. It is 800m long and up to 40m wide. Zacatecas looks oversold and attractive to

accumulate on weakness.

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Silver Hammer (CSE:HAMR; OTC:HAMRF) stake 52 new claims at its Eliza Silver Project in the historic

Hamilton District of Nevada, doubling its land package. Initial exploration work showed mineralization

extends onto these new claims. Mapping and geochemistry is ongoing to plan an extensive initial

exploration program for early next year.

Initial sampling from the Silverton Mine, 108km west of Kinross’s Round Mountain, confirms gold

mineralization. A 6.1g/t sample was taken. Do not read too much into grab samples, as they may not be

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representative of what lies underground. Still, they are encouraging. Phase 1 drilling started at the Silver

Strand Mine in Idaho. This should help with info on the plunge, depth, lateral expansion, and dip of the

veins to support modelling and future drilling phases, as well as potential timing of an initial resource.

HAMR is looking oversold, just like its peers. Attractive to accumulate on weakness.

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