Silver Price Update: Q1 2017 in Review

Here’s an overview of the main factors that impacted the silver market in Q1 2017 and what to watch out for heading into Q2.

silver price update

The silver price gained more than 10 percent in the first quarter of the year, fueled by worldwide economic and political uncertainty.

Donald Trump’s presidential election win has been a key driver of that uncertainty. Concerns about what he may or may not do have sent investors rushing to buy precious metals like gold and silver as safe-haven assets. Many analysts believe that silver in particular is now on track for another positive quarter, and will continue to perform well in the coming years.

With that in mind, here’s an overview of the main factors that impacted the silver market in the first quarter of 2017, and a look at what investors should watch out for heading into Q2.

Silver price update: Q1 overview

Silver has been surging since the second half of 2016. Its only significant drop during Q1 2017 came in March before the US Federal Reserve announced its second rate hike in three months; however, once the hike actually came, the silver price rebounded.

The white metal has outperformed gold so far this year — according to Bloomberg, the gold-silver ratio rose to 71 on March 14, the most in two months, and above the average of 62 seen in the last decade. That shows there’s potential for silver to appreciate further compared to gold.

The chart below shows how the silver price performed in the first quarter of 2017:

screen-shot-2017-04-06-at-12-45-36-pm

Chart via BullionVault.

Silver hit its highest point in 2017 on March 1, when it briefly reached $18.39 per ounce, a three-month high. It reached its lowest point of the year on January 1, when it sank to $15.91; it was pushed down that day by a higher US dollar and by the Fed’s decision to increase interest rates.

The silver price finished the quarter at $18.27, and as mentioned, many market watchers believe that further gains could be in store later in 2017. In particular, instability caused by Trump and upcoming European elections could improve sentiment among institutional investors and push the metal higher.

“We expect that the factors that buoyed institutional silver investment over much of 2016, and have carried over into the early months of 2017, will remain relevant for the remainder of this year,” said Michael DiRienzo, the executive director at the Silver Institute.

Silver price update: Supply and demand

The silver market recorded its fourth consecutive annual deficit in 2016, supported by ETF trust fund investment and strong stockpiling in exchange-approved warehouses.

Another deficit could be in store this year. According to Capital Economics, silver mine output is expected to fall more than last year’s 2 percent. “We estimate that silver mine supply could fall by 4 percent in 2017,” Simona Gambarini, a commodities economist at the firm, said via email.

Last year, silver mine production dropped in large part due to production cuts from major diversified miners like BHP Billiton (NYSE:BHP,LSE:BLT,ASX:BHP), Nyrstar (EBR:NYR) and Glencore (LSE:GLEN), all of which produce silver as a by-product.

Only around 30 percent of annual silver supply comes from primary silver mines. More than a third is produced at lead/zinc operations, while a further 20 percent comes from copper mines.

Meanwhile, silver demand should remain strong. Though demand from the industrial sector is seen staying flat — though still near a record — other areas will thrive. “Use in solar panels, electronics, batteries, jewelry, chemical process catalysts, and other manufactured products will remain strong,” said Jeffrey Christian, managing director of CPM Group.

Silver price update: What’s ahead?

As the second quarter of the year begins, investors interested in the silver market should pay attention to a number of factors that could have a short-term impact on the precious metal’s price.

Looking at how gold performs will be essential. “It is likely that the positive momentum in gold prices will spill over to silver prices as well,” Georgette Boele, ABN AMRO Group (AMS:ABN) commodities strategist, said in a note. “Moreover, further upward momentum in the US economy will probably result in higher industrial demand for silver.”

Similarly, Robin Bahr, a metals analyst at Societe Generale (EPA:GLE), said last month: “[w]e expect silver prices to remain steady in 2017, as any safe-harbor demand on the back of appetite for gold is likely to be bolstered by a modest rise in industrial usage.”

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Investors should also watch for any further rate hikes from the Fed. In particular, it will be important to note how they impact the US dollar, as a higher greenback could pressure silver.

Finally, investors should keep an eye on political events worldwide. European elections, the Brexit process and Trump’s upcoming policies could boost silver prices at any time.

Capital Economics sees the silver price remaining fairly steady over the next few years. Its silver price forecast is $14.50 by the end of 2017 and $17.50 by the end of 2018.

Similarly, panelists at FocusEconomics see silver falling marginally from the current level in the coming quarters, before rising next year. The most bearish forecast for the second quarter comes from Emirates NBD, which is calling for a price of $15.30; meanwhile, RBC Capital Markets is the most bullish with a forecast of $19.30.

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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.

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