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Global Silver Demand May Push Up Prices 30%

Headwinds for Silver
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EDITOR NOTE: Under normal circumstances, one in which a fairly conservative analysis might apply, silver may be poised to rise around 30% from current levels. This takes into account the shortage in supply, challenges in mining and production, and the increasing global silver demand for both safe-haven investment and industrial consumption. That’s what the MarketWatch article below says. In slight deviation, we assert that there is hardly ever a “normal” situation in the markets. Something unexpected or unseen--the latter, deliberately or not--is always bubbling underneath the surface. Hence the market fluctuations that catch investors by surprise, or the uneasy stability of a rising market in times when volatility should be the norm. The recent supply shortage, price suppression, inflationary factors, and shift in industrial use are part of a condition that not only turns against a “business as usual” scenario but highlights unprecedented risks through the negative space that surrounds it; the shadows that loom large around their hidden source. There is no way to confidently put out a conservative thesis, such as that which the article below claims, when the factors in the mix are highly volatile and combustible. Our thesis: a 30% rise in silver is just the first waypoint in a fundamentally driven trend toward levels that will be as inversely staggering as the monetary fall that our economy is about to undergo.

Global silver demand suffered a decline last year on the back of pandemic-related restrictions to economic activity, but is expected to climb this year, contributing to a rise in prices for the metal that may top 30%, according to a report from The Silver Institute released Thursday.

Prices ended last year with a strong gain, up 27% from 2019 to an annual average of $20.55 an ounce, said The Silver Institute’s World Silver Survey 2021, produced by researchers at Metals Focus. That was the highest average silver price since 2013.

The report forecasts a further climb in 2021 of 33% to an average annual price of $27.30, with prices potentially rising to a peak of $32 during the year. Silver, based on the most-active futures contracts, haven’t settled above $30 since February 2013, FactSet data show. The May silver contract SIK21, -0.02% SI00, -0.02% settled at $26.57 an ounce on Wednesday.

A “physical improvement in investor interest” contributed to the 2020 price climb, Philip Newman, managing director at Metals Focus in London, told MarketWatch. Silver benefitted as a precious metal and a safe haven, with investors looking at the uncertainty tied to COVID-19 and, as the economy started to slowly improve, so did silver prices — given that it’s an industrial metal as well, he said.

In March of last year, the gold:silver ratio, which refers to number of ounces of silver required to match the value of an ounce of gold, topped 127, according to the report. That also led some investors to view silver as “undervalued, and rightly so,” said Newman, so they began to move into white metal, leading to the sizable price climb for the year.

Last year, however, total global silver demand declined by 10% to 896.1 million ounces, according to the report, which cited the pandemic and its “direct impact on economic activity and, in turn, many silver end uses.”

Industrial silver demand, fell by 5% in 2020 to a five-year low of 486.8 million ounces, while strong overall demand for silver bars and coins lifted net physical investment demand by 8% to a four-year high of 200.5 million ounces. Investor interest was “fueled by the onset of the pandemic, combined with marked price weakness in March,” the report said.

Still, a collapse in Indian silver investment was a notable surprise, Newman said. It down 85% last year because of lockdown restrictions and heavy profit taking late that year, the report said.

“A lot of investors were selling back bars into the market,” and India’s bar and coin demand went from around 57 million ounces in 2019 to 9 million ounces in 2020, said Newman.

On a more positive note, however, the World Silver Survey shows expectations for a rise in total silver demand in 2021 of 15% to 1.03 billion ounces, with a 26% increase in physical investment to 252.8 million ounces.

Last year’s net investment in silver-backed exchange-traded products grew by 331.1 million ounces — a 300% surge from last year — though after that spectacular rise, it’s expected to fall by 55%, to growth of 150 million ounces this year, according to the report.

“Last year was exceptional,” said Newman. This year “will just remain a strong year,” with the 150 million ounces in ETP investment growth “still pretty sizable.”

Original post from MarketWatch

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