Hecla Mining (NYSE: HL) stock declined 5% through 12:30 p.m. ET Wednesday after gold prices took another leg lower — and silver fell even more steeply. This morning, the U.S. Bureau of Labor Statistics reported the Consumer Price Index (CPI) rose 2.4% for a second straight month in February.
These two things are connected.
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There’s war in the Mideast, and it may last a while. Investors often view precious metals like silver and gold as safe havens in times of conflict. Silver prices soared 2.5% in the immediate aftermath of the attacks on Iran.
War can also be inflationary, though, especially when it strangles global oil supplies and drives up fuel prices. So while CPI held steady in February (albeit still above the Fed’s 2% inflation target), the worry is that the March data will show a sharp rise in inflation.
If this happens, investors may sell silver (which doesn’t pay interest) and buy bonds instead (which do pay interest, and increasingly more interest as inflation rises). In a nutshell, this is why silver prices are down 5% to $85.14 an ounce today.
As the nation’s biggest silver mining stock, it makes sense that Hecla mining stock would fall today — indeed, fall exactly the same amount silver prices are falling. It doesn’t help, either, that Hecla is a richly priced stock, costing nearly 45 times trailing earnings.
Granted, Hecla stock looks cheaper based on forward earnings — less than 29x. But this depends on earnings continuing to rise. If inflation surges and silver prices fall, Hecla stock might not end up much cheaper next year than it is now.
With plenty of cheap gold stocks to bet on instead, I’d avoid this expensive silver miner.
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