What happened in the silver market in Q2? Our silver price update covers supply, demand and other key factors impacting the metal.
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The silver price showed resilience during the second quarter of 2020, adding 25 percent to its value over the period. The white metal trended higher month-over-month after falling to a 10 year low of US$11.94 per ounce when markets retracted in March.
Silver’s association with gold’s safe haven status helped the metal retain its value and offered investors an alternative to the yellow metal, which has now climbed above US$1,850 an ounce.
The attention correlated to growth in exchange-traded funds (ETFs) and share price increases for silver miners and explorers. However, industrial demand was still feeling the impact of COVID-19 disruptions.
Following the silver price fall in March, a rush to silver ETFs and exchange-traded products (ETPs) ensued. That sector saw holdings balloon to an all-time high of 925 million ounces, with 196 million ounces of that amount added over the first six months of 2020.
“There just seems to be a sense of people rushing to the safety of safe haven assets, such as silver,” said Michael DiRienzo, executive director of the Silver Institute.
The rush to ETPs was the largest contributing factor to silver’s Q2 price growth, according to DiRienzo.
“I think it’s really important to note the high level of silver investment in ETPs at the end of June, which were at 925 million ounces,” he said. “(Also) the intra-year shift upwards with respect to 196 million ounces in the first half of the year, already surpass(ing) the annual total of 149 million ounces in 2009.”
There was also significant growth in physical demand, a point that was outlined in the Silver Institute’s Q2 press release. “Retail bullion coin sales jumped by an estimated 60 percent year-on-year,” it reads.
“Silver bar and coin sales surged in response to a deteriorating economic outlook linked to the global COVID-19 pandemic, leading to some supply-chain disruptions.”
Transport concerns quickly led to dealers reporting depleting stocks, resulting in longer delivery times and higher premiums.
In April, Metals Focus projected continued growth in this segment throughout Q3 and Q4. “Silver physical investment is forecast to extend its gains this year, with a projected 16 percent rise to a five year high as investors rotate out of equities in search of safe haven vehicles,” notes a report from the firm.
By the end of April, modest gains brought the silver price from US$14.38 to US$14.93.
Silver price update: Weak industrial demand
As safe haven demand buoyed the silver price into May, concerns about COVID-19’a long-term impact on industrial demand began to loom.
An area that is expected to experience a significant drop is the photovoltaic (PV) solar panel space.
In 2019, 100 million ounces of silver were used in PV manufacturing, accounting for 11 percent of silver fabrication demand. Demand will undoubtedly be impacted by factory closures and installation delays, and a Silver Institute report from May notes that last year was likely the peak of demand.
“We forecast a slow decline in silver demand from 2020 to 2023 as PV capacity added per year dips, while attempts at silver thrifting in PV panels continues at a diminished rate,” reads the report.
However, as COVID-19 allows many countries time to rethink energy consumption and green initiatives, the PV sector could see growth.
“It depends on a country-by-country basis,” said DiRienzo. “But the fact is that as the world looks to alternatives to fossil fuels, solar panels, which of course use photovoltaics, will be a main component.”
There are also new use possibilities for silver. As David Morgan of the Morgan Report explained, he doesn’t see industrial demand reaching pre-pandemic levels this year, but sees growth elsewhere.
“(It’s) interesting that some of our underground research indicates that nanosilver (particles) may be used as a cleaning agent,” Morgan said via email.
DiRienzo briefly touched on novel uses of the white metal as well. For him, the most potential arises from silver’s use in textiles as an antibacterial agent.
Highlighting some of the companies that already use silver textiles in athletic wear, he said it’s possible sports teams may use the fabric as well.
“The fact is that we already have this on the market, and silver’s use in textiles has been approved by the Environmental Protection Agency in the US and is a growing area,” he said. “It’s going to grow further. I think that more sports teams will be using silver-based athletic textiles.”
In May, silver recorded its largest month-over-month Q2 gain, growing from US$14.94 to US$18.28.
Watch the video above to hear Brien Lundin and Chris Marcus discuss the silver market
Silver price update: Declining mine supply and muted demand
With factories and manufacturers working to get supply chains back to pre-pandemic thresholds, DiRienzo remains optimistic that industrial demand will return this year.
“We do see that happening for several reasons,” said the Silver Institute director. “As the economies get rolling again, and we’re starting to see some growth overseas in China and other countries, the need for silver and gold industrial metal will be even more important.”
Jeffrey Christian expects fabrication demand to continue recovering throughout the rest of 2020, but pointed out that what 2021 will bring remains hard to gauge.
“As Q3 progresses, mines and refineries are coming back and the supply shipping logistics are sorting out,” said the managing partner of CPM Group.
“Fabrication demand has been a bit slower to recover, so there is some bearishness hanging over the physical silver market. As of mid-July, this is being offset by the large open interest in the September COMEX contract that is applying upward pressures on prices, coupled with strong demand in silver ETFs.”
As demand grows, the implications of lockdowns and production curtailments will become more obvious. Silver mine production is expected to fall 5 percent this year to 797 million ounces, while overall global supply is seen sinking by 4 percent to 978 million ounces. That would be the lowest since 2009.
Silver price update: Where will the price go
The silver price has surged past US$22 since July 1, adding over 25 percent to its value year-to-date. The current price of US$22.73 is a seven year high for the white metal, prompting investors and other market watchers to ask the question: How high will silver rise this year?
“(CPM Group expects) prices to rise during August, and then plateau or maybe decline a bit during the September to November period, with higher prices next year,” said Christian, who forecasted silver’s ascent past US$20 in a July 20 email.
For the Silver Institute’s DiRienzo, the white metal’s price will rise and help reduce the discrepancy in the gold/silver ratio, which he sees falling below 90:1 in late 2020.
Watch the video above for Chris Marcus’ thoughts on the silver outlook.
The gold/silver ratio has been persistently high, breaching 120:1 in March, and is an area that Morgan also brought up. “Silver is undervalued to every investment until it reaches a 35:1 ratio with gold,” said the publisher of the Morgan Report.
He sees the white metal gaining value throughout 2020. When asked if it could surpass its 2011 highs of around US$40 an ounce, he explained, “US$40 and beyond if — and only if — silver can overcome the general ignorance about value investing and the money problem.”
June was the only month in Q2 that saw the metal pull back slightly, losing US$0.02 from its June 1 value.
While seasonality may be at play, Christian warned of the difficulty with silver prices this year.
“Prices now are trying to break above a range that has held since the middle of 2014,” he said. ”So the rise in prices during April and May reflected a recovery from the shock of the pandemic and global economic lockdown.”
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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.