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Silver Price Manipulation Explained By Experts

manipulation of silver
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The 2020 silver market was resoundingly resilient in the face of many challenges. While COVID-19 bore down on most commodities, silver displayed its best performance in a decade. From its lowest to highest point this year, silver climbed an impressive 137 percent; that’s compared to gold’s increase of 38 percent over the same time horizon.

The white metal also reached a seven-year high in August 2020, trading for the US $28.32 per ounce after sinking to an 11 year low of US $11.59. The comeback highlights silver’s ability to outperform gold. Now holding in the US $23 price range, analysts and sector participants are optimistic that the precious metal will continue its price gain and outshine its sister metal gold.

The Silver Outlook 2021

“Once the gold rally resumes, tactical buying will help fuel further price gains for silver,” Neil Meader, director of gold and silver at Metals Focus, wrote in a recent report. “This should help silver outperform gold, which we believe will the gold: silver ratio continue to fall during 2021.”

One factor that may contribute to higher prices in 2021 is the impact of COVID-19 related closures this past year. Lockdown measures in key silver-producing countries are likely to affect mine supply tallies from this year, which could spur price growth.

“The impact of COVID-19 on silver supply has been the same as for gold, only more pronounced because mined silver supply is much more concentrated in the major producing countries,” noted Adam Webb. Webb, who is director of mine supply at Metals Focus, went on to explain that Mexico, Peru, and China accounted for 52 percent of global mined silver output in 2019.

“This year mines in all three countries were temporarily suspended due to COVID-19 restrictions, with Peru in particular heavily impacted,” said Webb. “As a result, we are expecting mined silver supply to decline by 6.3 percent year-on-year, a greater drop than for gold.”

Physical silver coins on black background

Due to the financial uncertainty caused by Covid-19, silver and other precious metals saw an increased demand.

Physical And ETP Demand To Remain High

The volatility that punctuated 2020 added tailwinds to the precious metals sector, pushing both gold and silver significantly higher. Investors looked to gold and silver as safe havens and guards against inflation. Physical silver investment is projected to reach a five-year high this year, accounting for 236.8 million ounces. The US saw the greatest increase, with investment demand climbing 62 percent according to the Federal Reserve. The exchange-traded product (ETP) space is also on track to register a significant uptick.

“ETPs established a record this year, an increase of about 350 million ounces,” said Michael DiRienzo, director of the Silver Institute. “So we’ve comfortably surpassed 1 billion ounces in ETPs. I think this is a reflection of investors’ portfolio diversification, getting into hard assets like silver.”

The rise in investment purchases will help offset declines in jewelry and industrial demand, both of which were deeply impacted by COVID-19 in March and April 2020 in bullion banks and hedge funds in New York. “Although demand has recovered since that, most areas are still on track for heavy full-year losses,” states an interim silver market review from the Silver Institute and Metals Focus.

The joint overview goes on to note that industrial fabrication demand is expected to fall 9 percent this year to 466 million ounces in financial markets. The photovoltaic segment is forecast to have dipped 11 percent in 2020. “This reflects the impact of lockdown restrictions, with supply chains heavily disrupted, end-users adopting an increasingly cautious approach to inventory replenishment and factories facing labor supply problems,” reads the report.

The pervasive toll of COVID-19 will shrink global GDP by 4.4 percent; however, much of that will be reversed with rampant growth in 2021, according to FocusEconomics. “Global economic growth is projected to rebound strongly in 2021, as major economies reopen and international trade picks up,” the firm states in a 2021 outlook report. “However, the recovery is sure to be uneven until a vaccine is widely available, with restrictions likely to be reimposed in response to potential further waves of the virus.”

That uncertainty will support a higher silver price, which, as Ralph Aldis of US Global Investors (NASDAQ) explained, also positions the white metal to outpace the price of gold. “I do kind of expect silver to remain more volatile than gold, principally because there are so few mines that produce silver as their primary product, and there are just a few companies that actually focus on silver,” he explained to the Investing News Network (INN).

The price of silver has already outperformed the yellow metal or physical gold in 2020, rising roughly 30 percent year-to-date compared to gold’s 17 percent according to regulators. Historically, silver futures contracts often double or triples the price action of gold.

“When you’re dealing with a real bull market in precious metals, silver’s typically at three times the price move to gold,” said Aldis. “That’s fairly common because of reduced opportunity to actually invest in silver, that just keeps it more volatile.”

Narrow investment opportunities paired with retail and institutional investor interest are expected to sustain ETP and physical growth in pricing in 2021. “(The Silver Institute does) think that the future is bright for silver - not only bars and coins on the fiscal side but also for ETP investment,” said DiRienzo.

Companies Optimistic Too

In a survey of resource-focused companies, 14 of which have honed their efforts on precious metals, the companies anticipate that 2021 will be a better market for gold and silver, with 12 projecting marked improvements in purchasing power.

Additionally, several participants were pleasantly surprised by the price action the sister metals experienced on the futures market and trading desks at JP Morgan Chase, COMEX, Deutsche Bank, and HSBC in 2020. The general consensus in the space is that US stimulus and lasting COVID -19 effects will play a role in the metals’ performance over the next 12 months in the silver futures market and may include price suppression.

Of the survey respondents, four have silver-focused exploration projects against financial crisis and spoofing: Alianza Minerals, Sentinel Resources, Silver Viper Minerals, and Belcarra Group, a management firm representing three junior companies, including Silver Viper. “I think with the stimulus packages in the US that prices are going to rise based on the US dollar being devalued,” said Stephen Cope, president, and CEO of Silver Viper. “I also think that as vaccines become available and the lockdowns end investors will start to redeploy capital into the markets.”

This sentiment was echoed by Jason Weber, Alianza’s CEO, director, and president. “I think that the amount of stimulus relating to the COVID-19 pandemic is only positive for gold and silver,” he said. The full effects of COVID-19 may be delayed, as too will the benefits of a higher price point for metals traders and producers. Even though silver hit a seven-year high in 2020, that doesn’t make up for production disruptions.

“Higher silver prices have had little effect on production, and certainly not (enough to) offset the impact of lockdowns. Generally, mines cannot be reactive to metal prices in the short term,” said Webb, who pointed out that mine plans are developed years in advance and are not easily changed.

“Certainly a small degree of flexibility is possible to target higher silver grade material or to process stockpiled material that would be uneconomic at lower prices; however, this activity is limited and will not materially impact global production in the short term.”

Silver Price To Hit US $30

For 2021, Metals Focus is forecasting added investment inflows, “driven by positive spillovers from gold and the white metals’ high beta.” The metals consultancy anticipates that silver will trade well above the US $30 level, with its annual average rising by 40 percent.

“Looking at silver’s key fundamentals, a recovery in mine production and scrap will see global supply reach a seven-year high,” reads its precious metals review. “The recovery in silver industrial application is expected to outpace global GDP growth, with offtake in 2021 almost matching the 2019 total.”

For US Global Investors’ Aldis, silver’s use in the burgeoning clean energy sector is exciting, especially in relation to green hydrogen, which requires massive amounts of electricity to produce. If that electricity is to be generated cleanly, then solar will play a key role, making photovoltaics using silver important. “I think the bigger trend really is just going to be just talking about reducing global greenhouse emissions. And it’s going to have to be accomplished by more power generation using silver,” said the portfolio manager.“That’s going to the biggest key in terms of creating the largest-scale demand for silver - you know, it’s going to be stronger than the exchange-traded funds I would think.”

Aldis also listed some companies with a high focus on silver that investors should keep in mind. For the mid-tiers, Aldis proposed South America-focused Pan American Silver. “Pan American Silver has always had a big focus on silver,” said Aldis. “They’re about 58 percent silver in terms of their exposure.”

He also likes Coeur Mining (NYSE) and Wheaton Precious Metals (TSX), which have 56 and 36 percent silver exposure, respectively. In terms of juniors, Dolly Varden Silver (TSXV) offers 100 percent exposure through its exploration and development plans. Aldis also likes Africa-focused Aya Gold and Silver (TSX), formerly known as Maya Gold & Silver. “You have a management team with a proven track record of running mines in West Africa, so this one could be really interesting,” he said. “All the infrastructure is there; they just need to really get some additional capital put into it.”

Silver has fared better than some of its metal peers against the backdrop of a disease-threatened global economy, in part because of its dual role as both a precious and industrial metal. “The monetary value of silver underpins the vast majority of its price, and if the metal had only industrial demand working for it, the price would be under $5 an ounce,” says Gold Newsletter editor Brien Lundin. “Silver’s precious side means it will outperform industrial metals in the months ahead.”

Futures prices for silver, which settled at $17.497 an ounce on February 12, 2021, have fallen by more than 2% this year. Silver hasn’t done as well as gold, which has seen futures prices rise by roughly 3% over the same period.

Gold has “risen on the back of monetary concerns, but that trend has been obscured by two geopolitical events,” Lundin says the US “dustup” with Iran following the US airstrike that killed Iranian General Qassem Soleimani and the coronavirus outbreak. Gold rallied on these geopolitical concerns, then fell as fears subsided. “Unfortunately for silver, that rising trend has not been clear enough to prompt speculators to be on silver along with gold,” he says.

Still, silver has been spared the steeper declines experienced by other industrial metals, such as copper, which has fallen 7% this year. China is the world’s second-largest consumer of silver after the US, and “the enhanced uncertainty in China surrounding the coronavirus fears is taking a toll on silver prices,” says Matthew Miller, an equity analyst at CFRA Research. While weaker industrial demand is likely to remain a headwind, CFRA predicts continued appreciation in safe havens in 2020, and we see a high probability that silver will outperform gold,” he adds.

Data analyzing in commodities metal market

The outlook for silver demand is bright, with the global total forecast to achieve an eight-year high in 2021

The Current Market

This year, the market is likely to see continued growth in physical silver investment and in the commodity’s use as an industrial metal, according to The Silver Institute’s recently released views on the 2020 global silver market. “There will be times when silver will have to contend with issues, such as the current health crisis in China, which could hit that country’s economy hard,” the institute says.

However, silver’s use as an industrial metal accounted for just over half of global demand in 2019, and growth in the metal’s “industrial offtake” is expected to resume this year, following two years of marginal losses in market manipulation, the institute says. It sees a 3% rise in silver industrial demand in 2021, with the electrical and electronics sector accounting for the bulk of the gains. Meanwhile, investment in physical silver, in the form of silver bullion coins and bars, is set to climb for a third consecutive year, the institute adds.

The institute projects this year’s average silver price at $18.40, which would mark a 13% rise from 2019 to a six-year high. “We base this on current global economic health and geopolitical uncertainties throughout important economies,” DiRienzo says. “Buttressing this forecast is a return to silver industrial demand growth, coupled with a robust increase of 7% in silver physical investment.”

Jeffrey Halley, the senior market analyst at Oanda, believes that silver prices have the potential to move beyond the US $30 per ounce this month and that the gold-silver ratio will provide clues to the outlook for silver prices. “Silver prices will derive from the gold-silver ratio. If the gold-silver ratio is going down, by default investors are selling gold and buying silver. If silver is not overbought, quid pro quo the ratio can go lower, further boosting silver prices,” he explains.

“The ratio reverted from 1:128 in March 2020 all the way to 1:80 today, making it one of the best trades of 2020. The ratio still has further to fall before one can say it is fairly priced and could fall much more before becoming oversold. That would mean silver has been overbought. As long as the US dollar remains weak and interest rates stay in the deep freeze, silver can move higher - but only as long as gold continues to do so. Watch the gold-silver ratio thoroughly for signs of a structural turn in your outlook.”

The gold-silver ratio is the amount of silver it takes to purchase one ounce of gold and is a tool for traders to forecast the movements of both precious metals.

Mike McGlone, the senior commodity strategist at Bloomberg Intelligence, believes that silver can reach US $30 per ounce, but US $25 will serve as a good resistance level for the next six months. He also believes that silver will underperform gold in a continued precious metals markets rally, pointing out that the latter has greater upside potential due to the gold-silver ratio returning to a good support level of about 1:80, as opposed to a peak of 1:120 in March 2020.

“To get [to US $30], silver is likely to follow on the coat-tails of gold prices, which has more enduring upsides from current levels, notably on the back of unprecedented global monetary easing. Rising silver is typically more dependent on a weaker US dollar, rising gold prices, and a rising stock market, all of which are less certain than the central banks’ monetary easing policies, [which serves as the] foundation for gold prices,” says McGlone.

Conclusion

Like other metals, the silver spot price is most heavily influenced by supply and demand dynamics. The silver price can be very volatile. That is partially due to the fact that the metal is subject to both investment and industrial demand within the global markets.

In other words, it’s bought by investors interested in using it as a store of wealth as well as by manufacturers looking to use it for different applications. Those applications are incredibly varied - silver has diverse technological applications and is used in devices like batteries and catalysts, but it’s also used in medicine and the automotive industry.

In terms of supply, in 2020, the world’s three top producers of the metal were Mexico, Peru, and China. Interestingly, even in those countries, the white metal is usually produced as a by-product - for instance, a mine producing primarily gold might also have silver output.

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All articles are provided as a third party analysis and do not necessarily reflect the explicit views of GSI Exchange and should not be construed as financial advice.

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