Silver May Be In Short Supply, But All Is Quiet on The Price Front
(Kitco News)- Are we running out of silver?
Silver production declined in 2017 by 4.1% marking the fifthyear in a row that the silver market overall posted a deficit.
The results are part of the World Silver Report releasedThursday by the Silver Institute which includes the GFMS team at ThomsonReuters. Silver prices, however, are still trading range-bound, below $20 anounce, seemingly ignoring the shortage of supply, but one analyst says thatprices are driven by more than what’s simply underground.
“It’s also the fact that you have a lot of above ground ...lin terms of bars and coins that is available to feed the market,” said JohannWiebe, lead metals analyst for GFMS Thomson Reuters in an interview with KitcoNews. “So it doesn’t necessarily mean that a deficit will lead to higherprices.”
Silver futures climbed by more than 7% last year. The Maysilver futures contract SIK8, -1.66% settled at $16.473 an ounce on Comex on Thursday, up roughly 2.5% for themonth so far, but down 2.7% year to date.
Wiebe added that silver’s deficit is relatively small whencompared to the physical market, standing at only 3% of the market. “It’s notquite big enough to make a significant impact on the price,” he said.
While mine production dropped last year, following a stringof disruptions across the Americas, overall total physical demand also eased,falling 2% on the year.
According to the report, the largest drop in demand came fromthe retail market, as coin and bar investments declined 27%.
Many experts have explained that cryptocurrencies werelargely responsible for retail investors’ withdrawal from precious metals lastyear, as speculators flocked to bitcoin and other parabolically-rising digital currencies.
Balancing this was a rise in industrial demand for the sameperiod by 4%, the highest level since 2013, supported by photovoltaicapplications, a recovery in electronics, as well as the automotive industry.
China, which accounts for half of the world’s new solarinstallations last year, was the main contributor to growth.
Wiebe said that while the retail market is still an integralcomponent of the silver market, accounting for 15% of all physical demand,industrial demand is likely to only pick up and will be the key driver for silverdemand growth in the future.
The lackluster silver trade can been seen in its relation togold as the gold/silverratio hovers near a two-year high around 81 points. The historicallyelevated ratio has prompted some analysts to recommend a short gold, longsilver trade. “I can see where they’re coming from,” Wiebe said. “Over a50-year period, the average for us was 55, now we’re near 82, and if you lookat the history, every time [it is] around 80, you see the ratio eventuallycoming down.”
The gold-silver ratio shows how many ounces of silver youneed to pay to have one ounce of gold.
Thomson Reuters forecasts silver prices to break past $18this year, but Wiebe noted that a further breakout to historical highs won’t bepossible unless “investment sentiment [is in] such a mood that [investors] arewilling to absorb significant amounts of more metal coming on to the market andpushing prices up.”
By David LinFor Kitco News
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dlin@kitco.comwww.kitco.com Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.