Commodity Trade Mantra

Brace for a Rally in Silver Prices – The Market’s Stepchild will Outperform All

Brace for a Rally in Silver Prices – The Market’s Stepchild will Outperform All

Brace for an Imminent Rally in Silver Prices

Silver, like gold, has always been regarded as a safe haven for the money of investors during volatile times. But the precious metal’s four-week low has made it volatile, making shareholders rethink their strategy if they should continue to stick with it. While the fluctuation will remain for the foreseeable future, those who had stayed by silver should not lose faith. There are various reasons behind the sharp fluctuation in silver prices, including conspiracy theories of the silver market being manipulated. Regardless of the reasons of its recent fluctuation, I firmly  believe that silver will redeem its value and surely not lay down forever at the bottom of the pile. In-fact, the more the silver prices get suppressed, the more volatile its breakout can be expected leading to even higher prices.

The demand for silver in Gujarat appears to be surpassing that of gold, at least in this festive season. Against a mere 0.43MT in August, the amount of silver imported in September reached 25.56MT, almost 60 times the noble metal imported in the preceding month. Expecting high sales of silver in the festive season, bullion traders and jewellers have stocked up heavily. Indian investors buy silver before Diwali arrives. Silver prices go up around Diwali, and therefore, investors in silver get active ahead of Diwali. It makes sense to purchase it when silver prices are on the lower side, and that this major boost in demand could be one of the reasons for the surge in silver imports.

Clean Energy Boom Is Good News For Silver Prices

Miners should not shy away from the growing clean energy movement, especially as demand for green energy may be good news for the metals, this according to one mining mogul.

“The shift into clean energy and the general move away from non-renewable ways is great for the mining industry,” Pan American Silver chairman Ross Beaty said at the Mines & Money conference in Toronto on Monday.

“First, fundamentally it’s going to make mining cheaper. Second, it’s going to juice demand for all kind of metals.”

The mining magnate turned renewable energy executive said this growing demand for new energy sources, particularly solar panels, will be most beneficial to silver prices.

“Silver demand has grown exponentially in photovoltaic cells. Today it’s the largest, single demand source for silver,” he said. “Almost everything on the periodic table is going to be used more because of this broad scale move globally to make more renewable electricity and sustainable transportation.”

Beaty said roughly 10% of global silver demand will come from uses of the metal in solar panels this year.

“Silver demand globally is about one billion ounces. One hundred million ounces — plus or minus —  is likely to be demanded this year for photovoltaic cells alone,” he said.

According to the Silver Institute, worldwide consumption of silver for photovoltaic reached a record 76.6 million ounces in 2016. “Photovoltaic (PV) demand for silver was up 43% over the previous year, the strongest growth since 2010,” the Silver Institute website said.

Beaty has a long history in mining, founding one of the world’s largest silver companies in 1994. In 2008, he ventured out of the mining space and into geothermal power. This summer he was also awarded membership in the 2017 Order of Canada. Beaty is now chairman of Pan American Silver while also holding the title of executive chairman of Alterra Power Corp.

For miners looking to make a similar shift though, the path won’t be an easy one, he warned.

“Mining is a tough business…but mining is easy compared to renewable energy generation,” he said. “It’s a very tough business.” – Sarah Benali

INDIA Continues to play a significant role in the Global Silver Market

India’s cultural affinity for silver underscores the country’s importance as a leading source of demand in the global silver marketplace.  The breadth of the Indian silver market resonates across much of the country, currently the world’s seventh largest economy.  The main drivers of this market, including demand, supply, investment, trade and economic factors, are discussed in greater detail in a new report, the Indian Silver Market Study, released today by the Silver Institute and produced by Metals Focus, the international precious metals consultancy.

India consumed 160.6 million ounces (Moz) of silver in 2016, accounting for 16 percent of global silver demand. The country’s dependence on imported metal means that changes in Indian offtake can impact countries that supply bullion to India.  Between 2010-16, India imported an impressive 990 million ounces of refined silver to meet its needs.

Silver jewelry and silverware fabrication account for more than half of Indian silver demand annually. These are traditional markets, though the demand drivers and consumer profile vary considerably between both segments. Typically, silver jewelry is purchased by most income groups in India, whereas silverware is bought by the middle and affluent classes. Since the start of this decade, there has been a large expansion of demand in both markets, from around 39 Moz in 2010 to 88 Moz in 2016. Of note, the Indian silverware market is the largest in the world and its importance is growing, representing 70 percent of the total global demand.

Indian investment demand for silver saw an unprecedented rise earlier this decade. Physical investment surged from 25.7 Moz in 2010 to a record high of 110 Moz in 2015. However, 2016 saw Indian coin and bar demand fall by around 70 percent, the result of higher silver prices and the government’s ever tighter clampdown on unaccounted money.

On the supply side, Indian mines produced 14 Moz of silver in 2016, making the country the fourteenth largest silver producer globally. Indian recycling of silver has experienced a steady fall over the last six years, with volumes down by almost 80 percent, from 16 Moz in 2010 to 3.4 Moz in 2016.  This lower scrap supply was primarily due to the slowdown in Indian economic activity.

“This report underscores India’s prominence in the international silver market. The country’s importance is poised to evolve even further as its economy grows and incomes rise,” stated Michael DiRienzo, Executive Director of the Silver Institute.

Safe Haven Silver To Outperform Gold In Q4 And In 2018

– Safe haven silver to outperform gold in Q4 and 2018
– “Expect silver to eventually outperform gold” say Metals Focus

– 2017 YTD, silver has underperformed gold, climbing by 5% versus 11%
– Silver undervalued versus gold and especially stocks, bonds and many property markets
– Will follow gold’s reactions to macroeconomic & geopolitical factors and should outperform gold
– Special report on India shows it accounts for just 16% of global silver demand
– Silver a “safe haven at times during which gold failed to be” according to academic research

Brace for a Rally in Silver Prices

Since the beginning of 2017 silver prices have disappointed many investors. With a 5% gain so far in 2017, it has failed to match gold’s 11% gains this year. Both precious metals have ultimately performed below expectations given the positive macroeconomic and geopolitical backdrop.

However, things are starting to look up for the industrial precious metal as industry observers believe it will outperform gold this quarter and into 2018.

In a recent Metals Focus report, the precious metals consultancy concluded that we do expect silver to eventually outperform gold.’ 

Whilst demand for silver coins in the US has been weak, there are some indicators that suggest this physical demand is beginning to pick up, alongside industrial demand. For example, there has been robust silver ETF demand and in September there was significant uptick in those taking immediate delivery on COMEX.

This year has also taken many market participants by surprise as silver demand has fallen in a number of areas. One of which is India.

The Metals Focus report for the Silver Institute believes that Indian demand in 2017 has not matched the decades’ unprecedented silver demand due to higher prices and a clampdown by Indian government on unbanked money in the drive to the cashless society.

However, incomes and the economy and both growing which leads the report to conclude that demand will come back to the country with a bang.

Gold-Silver ratio shows silver undervalued

In June, silver prices hit a low of $15.60/oz, since then it has recovered somewhat. The gold-silver ratio is also higher than expected, given gold’s performance of late. Earlier this year it fell to as low as 68, but has recently been stuck between 74 and 80.

Gold-Silver ratio

The modern historical average is around 40 to 1. The long term historical average is 15 to 1.

Not only is silver undervalued relative to gold but also to increasingly over valued stocks, bonds and property markets.

Given silver’s industrial role and the fact that geologically there are just 15 particles of silver to every one particle of gold, it is likely that the gold/silver ratio will gradually return to below the 100 year average of 40 to 1.

At the current depressed gold price this would put silver at nearly $32/oz.

India’s love for silver

Love for gold in the world’s seventh largest economy is well-documented but few are aware of its feelings towards silver.

In 2016 India’s demand for silver accounted for just 16% of global demand. The report summarises the all important context for this:

India is one of the world’s largest silver markets, with a very traditional core in a diverse market. To put this into perspective, India consumed 160.6Moz (4,996t) last year, which accounted for a noteworthy 16% of global silver demand. It is not only the scale of Indian demand that matters; the country’s dependence on imported metal means that changes in Indian offtake can impact those countries that supply bullion to India.

The sheer scale of the Indian silver market resonates across much of the country, from physical investment, through to day-to-day activities.

It is also integral to India’s cultural and belief systems. It is therefore not surprising that silver is an important part of Indian festivities and weddings.

For example, it is considered auspicious to gift silver during weddings or for the birth of a child. All this means that silver’s appeal extends across most income groups. Even so, the silver market in recent years has evolved considerably in line with the growth in the Indian economy and the rise in incomes.

Regarding demand, jewellery, silverware and physical investment account for around 75% of total Indian silver demand. With jewellery and silverware accounting for more than 50% of total silver demand.

Investment demand is increasing from a very low base.

composition of Indian silver demand

In 2010 the two markets combined accounted for 1,200t. By the end of the decade the Silver Institute believes ‘the market will expand further to around 109Moz (3,400t), driven largely by healthy economic growth.’

Industrial demand accounts for just 22% of Indian demand and, like investment silver, it has struggled in recent years. The report explains, that this was due to an economic slowdown:

‘This saw Indian demand fall from 45.7Moz (1,421t) in 2010 to 35.9Moz (1,115t) in 2015. However, with the economy improving over the last two years (GDP growth is back over 7%), we expect industrial demand to continue to rise in the coming years.’

Outlook has a silver lining

World Gold Council data-provider Metals Focus’ conclusion will bring some hope to silver investors:

the case for further price gains, for both silver and gold still appears strong. Together with negative interest rates (in real or nominal terms) in several key currencies, expectations for Fed rate increases have also been pushed further out. This should make the case for a weaker dollar going forward. Along with heightened geopolitical concerns, investment demand should strengthen. While gold will be the main beneficiary, silver prices should also improve.”

Overall, silver will not only step back up to the plate but it will excel the lacklustre performance of this year.

“Given silver’s much smaller market (compared with gold) it should experience greater price volatility. This in turn should see silver prices eventually outperform gold, both later this year and into 2018”

A buying opportunity

We can sit and ponder where we think the price may or may not go in the last three months of the year. We can also sit and hypothesise as to why both gold and silver haven’t performed better this year. Neither of these scenarios help our portfolios.

Instead we have to focus on what we do know – silver is currently relatively cheap when considered against a backdrop of heightened geopolitical concerns, rising inflation and ever-prominent and increasing debt risks.

History tells us that very little currently at the forefront of both economic and political concerns are going to be dealt with without negative consequences. History also tells us that silver has a key role to play as a safe haven in your portfolio.

Academic research echoes this sentiment.

Should you believe the politicians both here and across the pond that the economy is improving, this is a further reason to hold silver as part of your portfolio. In 2012 Belousova and Dorfleitner concluded that

‘Adding silver or platinum to a portfolio [of stocks, sovereign bond and the money market instruments] during bull markets reduces volatility and enhances return.’

When looking at all four precious metals’ role as a safe haven between 1989 and 2013, against the S&P 500 and US 10 year bonds, Lucey and Li (2015) found that ‘silver was a safe haven at times during which gold failed to be’, but also during far more quarters than both platinum and palladium.’ – Goldcore

Silver ETF Slide Could End, Stage Big Comeback

The iShares Silver Trust (NYSEArca: SLV) and ETFS Physical Silver Shares (NYSEArca: SIVR), which are backed by physical silver bullion, are lower by nearly 3% over the past week, but silver could be ready to stage a comeback.

Some commodities market observers believe silver has more upside ahead of it and that the recent pop for the white metal is a sign of a potentially epic rally. That sentiment could be bolstered by the struggling dollar.

The PowerShares DB U.S. Dollar Index Bullish Fund (NYSEArca: UUP), the tracking exchange traded fund for the U.S. Dollar Index, is one of the worst-performing currency exchange traded funds this year. UUP is lower by almost 9% year-to-date. Silver and other commodities are denominated in U.S. dollars, meaning weaker greenback is often supportive of upside for commodities prices.

Currently, the gold/silver ratio indicates the white metal could be a buy.

“From just a few trading days ago, the ratio has shot up, meaning that it takes way more silver to buy just one ounce of gold right now. Said differently, the ratio is getting extreme again, which means that silver could start moving quickly in price as more and more people decide to purchase silver over gold,” according to ETF Daily News.

Silver prices could get another boost if gold prices start rebounding in earnest. Indian demand is vital for gold because the country is the second-largest buyer of the yellow metal behind China. India, one of the world’s largest gold consumers, could be set to lower its import tax on bullion, which could be major catalyst for gold prices.

“Silver has two unique properties that, when comparing all other asset classes, are only seen in gold as well: Silver is money and silver is an industrial metal. If the copper price is turning up, as shown in the chart above, silver prices could start moving up as well, which it looks like it wants to do when compared with copper,” reports ETF Daily News.

Investors can tap silver equities with the Global X Silvers Miners ETF (NYSEArca: SIL) and related ETFs. SIL, the largest silver miner-related ETF, tries to mirror the Solactive Global Silver Miners Total Return Index, which is also comprised of global silver miners. – Etftrends

 

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