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Bullish Silver Fundamentals: Investment Demand Up 10% in First Half of 2020

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The price of silver has surged along with gold over the last few weeks and has pushed above $19 an ounce. But the white metal continues to lag behind gold with the silver-gold ratio at over 94-1. This is a historically wide spread and it is telling us that silver remains way undervalued. At some point, you would expect that ratio to close, meaning silver has a long way to run up.

Fundamentals in the silver market also look bullish for the white metal with increasing demand and a squeeze on supply. Investment demand for silver was up 10% in the first half of 2020, according to the latest data compiled by the Silver Institute.

Strong growth in silver ETFs led the way. Gold ETFs have taken in record levels of metal this year and silver funds have followed suit.  As of June 30, global silver holdings in ETFs reached a fresh all-time high of 925 million ounces. That equals about 14 months of mine supply. ETFs added 196 million ounces of silver through the first six months of the year. We have already eclipsed the highest annual inflow of 149 million ounces set back in 2009.

Silver coin and bar sales have also helped drive investment demand for silver. Retail bullion coin sales jumped by an estimated 60% year-on-year. Strong demand led to shortages of many silver bullion products, resulting in extended delivery time and higher premiums.

The COVID-19 pandemic has hurt silver jewelry sales, but the Silver Institute says the silver jewelry market will likely weather the storm far better than other precious metals this year.

This is due to the relative affordability and greater suitability to online selling of silver jewelry. Metals Focus, the independent precious metals consultancy, forecasts an annual decline for global silver jewelry fabrication of just 7 percent against a projected 25 percent slump for gold.”

Government lockdown of economies also hit industrial demand for silver hard, but analysts say there were signs of improvement in May and June as economies began to open back up.

On the supply side, mine output fell precipitously with the COVID-19 economic lockdown. Many major mines were forced to shut down due to the pandemic. Analysts at the Silver Institute say they expect mine supply to continue its four-year slide. Even with most mines back online, the institute projects a 7% decline in mine output this year. Global mine production fell by 1.3% in 2019.

With positive supply-demand dynamics in play, along with the devaluation of the dollar thanks to trillions in Federal Reserve money-printing, the Silver Institute projects the price of silver will push past $21 an ounce by late this year.

Investment inflows into silver are likely to continue in the second half of 2020. This is primarily a result of its safe-haven status, a widespread belief among investors that silver is undervalued in absolute terms in comparison to gold, exceptionally low interest rates (reducing the opportunity cost of carrying gold and silver), and unprecedented liquidity injections by central banks.”

Keep in mind, at its core, silver is a monetary metal. It tends to track with gold over time. And it has historically outperformed gold in a gold bull market.

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