Silver Price Update: Q1 2020 in Review

Click here to read the previous silver price update.

The silver price held steady in the US$18 per ounce range for much of January and February, climbing as high as US$18.60 for the first time since September 2016.

But the white metal’s gains were short-lived, with a deep market rout reversing all of its profits and bringing it as low as US$11.94 in mid-March, its weakest point in over 10 years.

Since then, silver has edged higher week after week and is now firmly locked above US$15 an ounce.

However, questions abound about the metal’s ability to sustain growth this year given its dual status as a precious and industrial metal. Read on for an overview of silver in Q1 and what could be next.

Silver price update: COVID-19 fears not buoying price

As mentioned, before the coronavirus decimated global markets in March, silver was showing much promise and was expected to record a 3 percent increase in demand for the first time in two years, according to a February report from the Silver Institute.

“Growth in silver industrial offtake (accounting for just over half of total demand in 2019) is expected to resume in 2020, reversing two years of marginal losses,” reads the report. “While weak economic conditions, particularly in China, remain a headwind to industrial output, a repeat of last year’s destocking along the supply chain (as a result of the trade war) is unlikely.”

The global organization did raise concern about the potential impact the coronavirus would have on the Chinese economy and the industrial sector, but remained positive about the white metal’s ability to grow.

“The outlook for silver remains positive, with the annual average price projected to rise by 13 percent to a six-year high of US$18.40 in 2020,” the report notes. “This rally is premised mainly on a positive spill-over from gains in gold, as the yellow metal will continue to benefit from macroeconomic and geopolitical uncertainties across critical economies.”

The silver price rose to its quarterly high of US$18.60 on February 24. But in the weeks after the white metal’s price fell solidly, hitting a three month low of US$11.94 on March 18.

Despite clawing back some of its losses towards the end of the quarter, the silver price is still 13 percent lower than it was at the start of 2020. Unlike gold, which has profited from its safe haven status amid COVID-19 country and supply chain closures, silver hasn’t benefited and is being weakened by its close correlation to industrial demand and consumption.

As CPM Group’s Jeffrey Christian explained, “Another reason is that the silver market is well supplied with metal, and many investors have turned away from silver because of its weak price performance in recent years. More companies that sell precious metals have been marketing gold more than silver.”

Silver price update: Supply disrupted, demand divided

By mid-March, the majority of silver producers and explorers had experienced operational slowdowns or complete shutdowns, raising serious questions about physical silver supply.

As with its sister metal gold, which experienced an intense rally after refineries and mines went offline, the silver price could be supported by a drop in production.

“I think the physical demand for gold as you saw because refineries shut down in Switzerland — I think that we could see a shortage of physical supply of silver coins going into the next two years,” said US Global Investors’ (NASDAQ:GROW) Frank Holmes.

An uptick in calls for the physical metal may be offset by a demand decline in the industrial sector, which is still dealing with supply chain disruptions and closures. “The reality is (industrial demand) has fallen off, these are depression numbers,” said Holmes.

However, he believes that heightened interconnectedness between G20 finance ministers and G20 banks will help offset some of the more substantial economic losses.

“I think you’re going to get synchronized negative real interest rates — they will do everything to turn the economy around,” he said. “That’s where you’ll get this massive surge in the silver and copper stocks.”

For Christian, mine and project closures won’t be a significant silver price motivator.

“While mine production and refinery closures are reducing the flow of newly refined silver into the market, factory closures are reducing fabrication demand,” he said. “Also, inventories and available supply are around to meet any new demand.”

Christian expects the silver price to show resilience as industrial processes come back online.

“Silver prices are likely to firm up as the world restarts production,” he said. “China is in the forefront of the restart, since it shut down earlier than the rest of the world. It is likely to take a restart of the rest of the world for silver prices to show significant foundation building.”

Silver price update: What’s ahead in 2020?

Moving into Q2, the silver price has held steady in the US$15 range and could be poised for growth as gold production reaches its peak level.

Other catalysts that could drive the silver price higher from now until the end of the year include a widespread output decrease resulting from COVID-19 work stoppages. That has led Christian to forecast a mine production slip of at least 10 percent for 2020.

“The major effect of COVID-19 will be its effects on the world economies and political structure. The deep recession we are facing and financial market instability already is driving up retail investor demand for silver, which has been very strong since March,” he said.

“This may persist, which would be positive for silver prices.” Of course, he said, this demand could also dissipate as the world comes to grips with the virus and returns to daily life.

For Holmes, an expected increase in silverware use could also be a price motivator this year.

“As the economy turns around, I think there’s going to be much more interest going forward and an appreciation of silver,” said Holmes. “You have silverware, it was created hundreds of years ago because viruses can’t attach themselves for long to it.”

As society adjusts to a semblance of normal life, Holmes sees silver and copper being more prominent.

“We’re going to start seeing a much greater concern over the metals that can protect people that are not expensive,” he said. “I remain very constructively bullish on silver and gold, but when it comes to industrial, it’s silver and copper.”

In terms of price, Holmes expects gold to move to the US$2,000 level, which would support a higher silver price. For his part, Christian thinks a potential reversal may be in the cards for the white metal.

“US$14 may be tested again, but silver seems most likely to claw its way back up toward a range of US$16.50 to US$19 during the rest of the second quarter and third quarter,” he said.

“Silver may rise back above US$16 by late April. Once silver moves above US$16.50 we expect (it) to trade in that range for the rest of the year, averaging around US$18 for the year.”

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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.