The silver price is higher again this morning, albeit marginally by 0.02%. Crucially the silver price remains above $40.

“One of the best performing commodities this year is silver, up over 32%. Thus it may come as a surprise that the share price of Fresnillo (LON:FRES), one of the world’s largest silver producers is in fact now lower than it was at the beginning of the year,” says Daniel Brebner at Deutsche Bank.

Brebner has this morning issued a paper that considers the failure of many commodity stocks to mirror the move higher in the price of those commodities they produce.

Looking at Fresnillo we note that the share price is a Hold at Deutsche Bank, the share price has under-performed despite the fact that there has not been any noteworthy negative newsflow from the company.

So why do investors treat precious metals equities with such apparent disdain?

Deutsche Bank believe, that in the case of gold equities, this is an easier question to answer and includes the following generalisations: 1) poor earnings growth, 2) poor production growth, 3) cost inflation, 4) political and technical risks and 5) a history of hedging.

In addition:

“We think investment demand is the key factor responsible for driving both gold and silver higher. Therefore one could make the conclusion that a buyer of precious metals equities is looking to gain exposure to that trend in investor bias,” says Brebner.

This seems needlessly indirect, as most investors can easily gain exposure to the metals via physical or related derivative or ETF.

Another aspect is the distinction between physical possession and the promise of receiving metal in future.

“For many investors in gold and silver, owning physical metal is considered more attractive than the promise of future deliveries from a mine. If this is in fact the case, then perhaps one could make the postulation that the market for gold is in fact quite tight, with strong spot/physical demand and future metal being increasingly discounted via the de-rating of precious metals equities,” says the analyst note.

Certainly this does not seem to be the case currently in the forward market for gold, which remains in contango, but then the gold market is challenged (at least for now) by the availability of government stockpiles. Silver is not hampered by such an apparent overhang.