Why First Majestic Silver Corporation Plummeted by 19% This Week
Key Points
Its price has suddenly and sharply declined over the past few days.
This is due largely to the Iran war.
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There are times when it's supremely good to be in the silver mining business, and there are times to stay far away. The past few days have seen sudden and sharp declines in the precious metal, and that's badly affected the performance of First Majestic Silver Corporation (NYSE: AG) stock. Its value fell a steep 19% this week, according to data compiled by S&P Global Market Intelligence.
As bad as gold
That would have been inconceivable for many investors even just a few days ago. The war with Iran caught many people around the world off guard, and its suddenness and immediate effects drove down the prices of precious metals -- which had been on a historically bullish run in the preceding weeks and months.
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The declines caught many gold and silver bugs off guard. After all, in times of rising geopolitical tensions, investors tend to buy into classic assets like precious metals rather than eschew them.
A war in the Middle East is different, however. Much of it centers on the production and shipment of oil; because of this, the prices for that ever-desired commodity have risen sharply. Since oil is usually priced in U.S. dollars worldwide, this will certainly have an inflationary effect on the currency. A rise in inflationary pressures consequently increases the likelihood of higher interest rates.
Finally, higher interest rates tend to lead to a stronger dollar, pricing out some international investors who have to spend more of their local currency to obtain greenbacks. No prizes for guessing which currency is typically used in precious metals transactions.
Unavoidable association
First Majestic has been a "live by the sword, die by the sword" company due to the relatively tight focus on its namesake metal (although it's diversified in recent times, most notably into zinc and lead). This is why I would avoid it for now, as the war is being led by a U.S. president who can be erratic and mercurial in his decisions. There are less volatile sectors and stocks for investors to buy these days.
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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
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