Can $100 Silver Prices Help the Rio Tinto-Glencore Merger?

The mining sector was rocked at the start of the year as Rio Tinto launched another attempt to merge with Glencore. How will this affect markets as silver prices approach $100 per ounce?

The Key Developments

• Third time's the charm, as Rio Tinto and Glencore are once again discussing merger options, with a decision expected before February 5.
• Rio Tinto's share price rose substantially before the merger announcement, as investors turned to metals as a store of value amid high inflation.
• Some analysts argue that silver could continue to rise amid the dedollarisation trend and outperform gold due to continued industrial demand.

Rio Shares Rise As Merger Progresses

Two weeks ago, the two mining giants, Rio Tinto and Glencore, announced they had restarted merger talks to build a $200 billion mining group that would be the largest in the world. Although the share price in both companies rose, investors were understandably a little sceptical, since this would be the third time in recent years that the two companies had tried to team up, and prior attempts had fallen apart. Now they have until 5th February to make a decision. However, in Rio Tinto's case, its share price gains are well within a broader trend that began in the summer as commodity prices continue to rise.

Amid the recent surge in precious metals, miners have naturally captured market attention. The dedollarisation trend has supported commodities as investors seek alternative value stores. Rio Tinto is best known for producing iron ore, while Glencore's strength is copper. The companies are now betting on the energy transition to power growth. Rio Tinto reported its Q4 production results on Thursday, with copper equivalent production rising 8% from a year ago. Glencore will update its production results next week. Both companies produce silver as a byproduct of copper refining, with Glencore producing 14.5K oz in the prior quarter. Rio Tinto could acquire additional silver reserves if the Glencore deal goes through.

Silver and Gold at Record Highs

Precious metals have been making record after record amid geopolitical tensions since the start of the year. However, they have pulled back a bit on Thursday since US President Donald Trump announced he'd reached a framework deal on Greenland. It still didn’t last long, as the two metals are already back at record highs and flirting with the $100 and $5k marks. With the general trend towards dedollarisation, fiscal uncertainty in Japan and continued geopolitical uncertainty in other areas, such as Iran, those commodities could continue to receive support. Silver has gained 27% since the start of the year, less than a month ago, as geopolitics added to tight supply amid growing industrial demand. Meanwhile, some analysts argue that the US's high debt levels could force the Fed to keep cutting rates even if inflation remains high. Silver would likely benefit from this setup as investors continue to pour into value stores. Although gold remains the premier safe haven, industrial demand could keep silver outperforming the metal. 

3x Silver ETF Faces $100 Resistance in Spot Silver Prices

The Boost Silver 3x Long* commodity ETF, which is designed to provide 3 times the daily performance of silver futures, has soared from 10,000 points in November to nearly 70,000 today. The synthetic price is currently trading outside the upper VWAP, with the lower line expanding downwards suggesting increased volatility. If silver were to top out at $100/oz, the synthetic product would decline by 3 times the drop in silver prices, bringing into focus the round supports at 60k, 50k, and 40k.  On the upside, 70k marks the first psychological resistance to new record territories.

*The Boost Silver 3x Long is a highly risky leveraged product and can lead to substantial losses.

Source: SpreadEx | Boost Silver 3X Long, Weekly Chart