The precious metals sector is off to the races in the first six weeks of 2017, as returns in both gold and silver are beating the S&P 500. The silver market is the best performer – with nearly double the gains seen in gold. Here’s a quick look at the numbers:
Why are silver prices outperforming gold? Here are four reasons:
This creates a dual demand base for the metal from both investors and from the manufacturing and industrial community. A less expensive cousin than gold, silver offers investors many of the same properties as gold including portfolio diversification and a hedge against in inflation as gold and silver typically trend in the same direction.
Silver attracts nearly 50% of its demand from industrial buyers for use in electronics, autos, nanosilver applications, medical devices and solar panels. Both the electronics and solar panel industries that use silver are expected to grow strongly, triggering even stronger demand.
The world uses more silver than it produces. The silver supply deficit may be one of the most overlooked and most positive factors for silver prices ahead. Older silver mines have been producing less. And, there has been less interest in exploration for new silver mines amid the lower current price level for silver. It’s historically cheap: Spot silver prices at around $17.90 USD an ounce currently are well below the all-time high at $49.51 an ounce in 2011. That sets the market up for a potential supply squeeze amid forecasts for rising demand from both the investment and industrial side.
The 2016 Thomson Reuters GFMS Annual Survey shows a silver deficit for the past three years in which data is available. See Figure 1 below:
Copper prices, another widely used industrial metal are also up sharply since the start of 2017. Copper is a key building component across a broad array of uses from construction to wiring, plumbing, heating and cooling and automobiles.
This metal has earned the nickname – Dr. Copper – due it its ability to presage global economic activity. Typically, rising copper prices signal rising global economic activity ahead. That adds up to more inflation and is bullish for both gold and silver.
The current technical chart pattern for silver prices is stronger than gold. The silver market is trading above its 50-day and 100-day moving averages, which are bullish signals for trend following traders.
Buying tactics: Spot silver is currently trading around $17.90 an ounce. Short-term retreats to the 17.50 an ounce or $17.25 an ounce zone would offer good buying opportunities for long-term investors if silver sees a price pullback.
Looking ahead, silver prices are expected to rise toward $18.21 an ounce in 2017 and $20.21 an ounce in 2018, according to a BofA Merrill Lynch Global Research report.
It is only a matter of time before silver prices hit the $18.00 an ounce mark. – Blanchard and Company
– Gaurav Sharma: Silver futures contracts extended their winning streak into a ninth successive week on Monday (27 February), as traders continued to bet towards the upside, with commentators opining the move in tandem with rising gold prices could well be down to speculators bracing for a major ‘risk-off’ event, i.e. an equity market slump.
At 4:12pm BST, Comex silver was up 0.59% or 48¢ at $18.51 an ounce. Concurrently, the Comex gold futures contract for April delivery was up 0.41% or $5.10 at $1,264.40 an ounce, while spot gold was up 0.38% or $4.78 at $1,261.95 an ounce, as prices stayed above the psychological $1,260-level.
Over the past nine weeks, gold has risen on eight occasions, while silver has risen in each of the past nine weeks.
Fawad Razaqzada, market analyst at, said the dollar-denominated and perceived safe-haven precious metals have risen at a time when Wall Street has repeatedly hit new all-time highs and despite the dollar holding near its multi-year highs.
“The metals’ remarkable performance may suggest that investors are positioning themselves up for a major risk-off event – such as a collapse in the US stock markets. With the major US indices rising almost parabolically, it is just a matter of time before the inevitable happens. The trouble is, the parabolic rally could turn literally vertical before the markets start to head south.
“But one thing is for sure, we are getting very close to the upcoming stock market sell-off. This does not necessarily mean the markets will absolutely collapse. But we are anticipating there to be at least a sizeable correction,” Razaqzada concluded.
Away from precious metals, oil futures returned to positive turf without showing any appreciable movement beyond the recent mid-$50 per barrel levels demonstrating little appetite for a spike above $60.
At 5:23pm GMT, the Brent front month futures contract was up 0.36% or 20¢ at $56.19 per barrel, while the West Texas Intermediate (WTI) was 0.44% or 24¢ higher at $54.23 per barrel, as the sideways tug of the upside risk of Opec production cuts and downside risk of rising US production continues.
Bjarne Schieldrop, chief commodities analyst at Nordic SEB, said Opec has been successful in its effort to dry up the market and shift the crude oil forward curve into backwardation, ie a situation in which the spot or cash price of a commodity is higher than the forward price.
“This is pushing front month contract higher versus longer dated contracts. While Opec is tightening up the front of the forward curve, recovering US shale production is loosening up the longer dated part of the balance. That is why the longer dated contracts are slipping.
“Opec probably hoped for a situation where the longer dated contracts stood at $55-60 per barrel, with Brent one month contract trading at a backwardation premium of $5 above that. It will possibly get its $5 backwardation premium but longer dated contracts are likely to slip lower leaving Opec with limited gain at the front end of the curve.”
SEB analysts still think Brent will average $57.5 in the second quarter 2017 as the front end of the curve is flipping into backwardation with “erosion in longer dated contracts likely to continue.”
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