Use of the precious white metal in industries like 5G infrastructure and new breed of smart electronics could drive demand.
A near-perfect storm had been brewing for the industry. Finally, the raft of factors has come together and resulted in a unidirectional move in silver prices over the last few months. With prices hitting multi-year highs, the silver rally has outsmarted gold prices and stumped commodity traders while making it one of the best commodities for the year.
Macroeconomic factors are pushing investments in precious metals, while bonds have lost their appeal. The weak economy has pushed investments in silver and gold. Investors now believe that the central bank could be expanding the stimulus programme which could make their currency lose value.
From the closing low of $11.772/oz on March 18, the Silver Continuous Contract on NYMEX has risen by over 100%. With prices hardening with every passing month, silver bars have been in short supply. It is not often that the glitter of gold pales in comparison to silver. 2020 is proving to be just that year.
If a poll of 42 analysts, carried out by Reuters journalists holds true for 2021, prices could average the $20/oz mark. Unless there is an increase in output or fall in demand, prices could be expected to remain firm.
Demand, volatility stay firm
Retail investors are pouring money into ETFs to ride the rally. iShares Silver Trust (SLV) has been among the star ETFs which prices up well over 100 percent from the low seen in March. The Aberdeen Standard Physical Silver Shares ETF (SIVR) has moved up over 50 percent YTD while the ProShares Ultra Silver ETF has given slightly better returns than SIVR.
The factors playing out in the commodity markets and ETFs have also rubbed off on the companies.The Coeur Mining (CDE) stock, which owns silver and gold mines, has recouped all the losses after the sell-off seen in the first quarter.
Silver has traditionally been a volatile commodity, high in demand during days of inflation. During the 1970s, when inflation had hit double digits in the U.S., silver prices had hit a lifetime high of $49. That was the time when three Hunt brothers had reportedly cornered over 200 million ounces of the metal. In 1979, prices had started at $6/oz and ended at $32/oz, typical of the volatility that silver goes through occasionally.
Rally after disrupted production
Demand from industries accounted for nearly half the silver consumption during 2019. As the economy gathers steam after a sharp fall in demand, the use of silver in industries like electronics and solar panels is sure to push up prices. Use of the precious white metal in industries like 5G infrastructure and new breed of smart electronics could drive demand.
The supply lines for the metal have been disrupted after the spread of coronavirus. At the start of the year, the output from mines was expected to grow by two percent, the first increase in output in nearly five years according to The Silver Institute.
Major silver producing countries like Bolivia, Peru, Mexico had lockdowns in the country, disrupting supplies. With the risk associated with mining, work was disrupted and production activity thrown off gear in countries like Australia which did not have a national lockdown. Silver’s annual production is now expected to fall for the year. At 1694 tonnes, it could be over six percent lower than last year.
The fall in output and the rising demand from select industries could be pushing prices up sharply. The rising prices also mean that investors are putting more money on silver exploration projects.
All that glitters, as of now, is silver!