Silver Up Over 70% Year-on-Year

Silver pushed above $27 an ounce last week and rallied to over $28.50 on May 18. There has been some selling since, but as of the morning of May 19, the white metal was trading around $27.40 an ounce. That’s a better than 70% increase year-on-year. Even the mainstream is bullish on silver with many commodity analysts saying the rally will likely continue.

Investment demand for silver soared during the pandemic. Holdings in silver-backed ETFs tripled last year, surpassing 1 billion ounces for the first time. Meanwhile, investment in physical silver also saw a healthy increase. Silver coin and silver bar purchases grew 8% to 200.5 million ounces in 2020.

Investment demand has continued into 2021 as industrial demand has rebounded. American Silver Eagle sales boomed in Q1, with sales totaling 12,053,500 ounces. That represents a 20.8% year-on-year increase. Strong sales came despite the mint rationing sales of Silver Eagles.

Max Layton, managing director of Commodities Research at Citi Global Markets told CNBC investment demand for silver will likely continue.

The pandemic resulted in a major decrease in US real interest rates, and a shift in allocations out of wealth and household savings into gold and silver. This more than offset the weakness in industrial consumption, and continues to do so.”

But about 60% of silver’s demand comes from industrial and technology applications, along with jewelry fabrication. Overall, industrial demand for silver fell by 5% to a five-year low of 486.8 million ounces last year. Jewelry demand dropped 26%,  and silverware demand tanked by 48%, primarily due to significant losses in India and pandemic-related shutdowns of retail stores and factories.

Ole Hanson, head of Commodity Strategy at Saxo Bank, told CNBC that surging industrial demand as economies reopen is driving the current rally.

“Industrial demand is probably the main reason why we’ve seen silver outperform gold, as it has over the last year … part of that (rise) is definitely coming from industrial metals which have really been on a tear. If you look at copper prices, they’ve more than doubled since hitting a low-point last year,” he added.

According to the Silver Institute, industrial fabrication is forecast to increase by 8% to a record annual total, led by electrical and electronics offtake. This forecast pick-up in demand is predicated on a recovery in vehicle manufacturing, strong consumer electronics demand, and further gains from the solar sector. Jewelry and silverware demand should enjoy double-digit increases in 2021.

Hanson also noted the increasing demand for silver in the global push toward “green energy” alternatives. The one bright spot for industrial silver demand during the pandemic was in the solar energy sector, which was up by about 2%.

“If we are serious about the green transformation then that will continue to attract demand for silver,” he said.

More fundamentally, silver is a monetary metal. It tends to track with gold over time. Inflation fears offer another reason to be bullish on silver.

If gold rallies then silver tends to rally, but even stronger,” Hanson said. “So most silver investors are probably keeping a close eye on gold prices, the level of the dollar and the level of interest rates. If it catches some decent tailwinds then it can actually run higher and faster than potentially other metals would do.”

On the supply side, global mine production registered its fourth consecutive annual decline last year. It was the most significant drop of the last decade, falling by 5.9% to 784.4 million ounces. Again, the pandemic was a major factor, forcing many mines to shut down operations for periods of time. Nevertheless, we can’t discount the downward trend in mine output over the last several years.

Silver enjoyed a brief moment in the limelight earlier this year when the so-called “Reddit Raiders” turned their attention to the white metal. The spotlight has dimmed somewhat, but there are still plenty of reasons to be bullish on silver.

The hope of the Reddit Raiders was to create a short squeeze in the silver market by buying up physical metal. The price popped temporarily, but it appeared at the time the silver market was just too big for the Reddit investors to squeeze. The price has dropped back and the spotlight dimmed. COMEX activity in recent months reveals a short squeeze could still be in play, albeit in slow motion. But regardless, there are still plenty of more fundamental reasons to be bullish on silver.

The Silver Institute expects investment demand for physical silver to remain robust.  Silver bars and coin demand expected to post their highest annual figure since 2015. ETF inflows are unlikely to match last year’s levels but should remain historically high.

LEARN MORE

The Powerful Case for Silver report covers the fundamentals of the silver market and explains why investors should be bullish on silver in the long term. You can download the report free.

The report covers the following topics in detail.

• Supply and demand dynamics
• Growing industrial demand for silver
• The Federal Reserve’s monetary debasement
• Silver’s role as money
• What the silver-gold ratio is telling us
• How to buy silver and the products to avoid

This report makes the strong investment case for silver — a metal with the monetary benefits of gold paired with the industrial upside of other commodity metals.