According to King World News, the newest Silver Hedgers Position report shows that "The setup in the silver market has become exceedingly bullish," even if the price of the monetary and industrial metal has decreased significantly from a year ago (-27%).
Commercial traders "are presently in one of the most optimistic positions in the recent decade," according to the graphic below. The positioning of bullion banks and commercial traders in the silver market over several decades is seen in the second chart. According to King World News, "there is no doubt the setup in the silver market is incredibly bullish at this juncture from a historical viewpoint," and "it is a good idea to be quite aggressive in acquiring physical silver right now on any additional decline."
But why now, and why silver?
Similar to gold, silver is a refuge asset during difficult economic times. Additionally, it is now 1/87th the price of gold, making it the "poor man's alternative" to gold as a means of escape.
This explained silver's stellar performance in 2020 when investors flocked to precious metals due to the coronavirus-related fear on the financial markets.
Silver made significant gains in only six months, rising from $13 in March 2020 to $28 in September 2020, while gold moved from $1,300 to a record $2,034 in August 2020. It's quite likely to occur once again.
Because there are fewer pure-play silver mines than there are for gold, silver is more susceptible to supply interruptions.
Due to many coronavirus-related mine closures in Latin America, where the bulk of silver is produced, the price of mined silver fell by the highest in a decade in 2020.
Main silver mines only provide around 30% of the yearly demand. More than two-thirds come from polymetallic ore deposits, such as gold, copper, and lead/zinc miners.
Finding "native silver" in the Earth's crust is exceedingly uncommon. It is often mined in conjunction with gold or as a byproduct of zinc-lead ore.
While the majority of gold that has been mined is still there, either cast as jewelry or melted down into bullion and kept as an investment, the same cannot be said for silver. According to estimates, about 40% of silver is used for investment, with over 60% going to industrial uses. Nearly 80% of the 60% used for industrial purposes end up in landfills.
Silver and gold have around 2.5 billion ounces accessible for investment, despite silver being nearly 17.5 times more common in the Earth's crust than gold.
Gold trades as an investment commodity, with prices fluctuating in response to variables including the US dollar, inflation, interest rates, and returns on government bonds. This is because the industry seldom employs gold.
In contrast, just 40% of the supply of silver is demanded as an investment. Silver often trades more like an industrial metal than an investment commodity since more than half of the supply is required for industrial purposes. However, when it is traded as a currency, metal movements are violent.
Silver survey findings...
The fact that the silver market registered a deficit for the first time since 2015 in 2021's Silver Institute Survey generated news. Boosted by a post-pandemic rebound in activity, secular forces pushing industrial offtake, and a spike in retail investor enthusiasm for the metal, all sectors of silver demand rose, according to SI.
Coin and bar purchases accounted for the bulk of demand volume, followed by industrial demand, driven by the restoration of industrial activity and the reopening of enterprises in the wake of COVID-19 lockdowns and restrictions in 2020–21. Industrial fabrication increased by 9.3% to 508.2 million ounces or 15,087 tonnes, the most the Silver Institute has recorded since 2010.
The Silver Institute forecasts a 3% increase in the world's supply of silver this year owing to greater mine production brought on by project ramp-ups and modest output improvements at existing mines. Despite improvements in industrial manufacturing and a persistent post-pandemic rebound in the jewelry and silverware industries, this will not be enough to satisfy the predicted 5% increase in world demand. (More below on the anticipated supply shortage.)
While the silver price will be under pressure from increasing US interest rates, SI predicts that various supportive factors will keep the decrease in its full-year average to 5%. For instance, the Silver Institute "finds this excessive," arguing that "expectations sooner or later will be adjusted, which should offer silver some support." Fed Funds Futures, however, suggest an interest rate of nearly 2.5% by year's end (we're there already, as the Federal Reserve enacted its second consecutive 0.75% increase, taking its benchmark rate to a range of 2.25-2.5%). At the same time, the Silver Institute "finds this excessive."
According to the Silver Institute's prediction in Appendix 1 below, the total silver supply will amount to 32,045 tons in 2022, falling short of the 34,270 tons of silver required and creating a 2,224-ton market deficit.
The output of silver from mines throughout the world is predicted to climb 2.5% from last year, hitting 843.2 million ounces or 26,226 tons, with Mexico likely contributing the majority of the increase. With a loss of 365 tons, Peru will see the largest fall, mostly due to the suspension of Uchucchacua in the fourth quarter of 2021 to enable Buenaventura to carry out development work targeted at enhancing the mine's profitability. Additionally, the crisis between Russia and Ukraine forced Kinross to halt operations at its Kupol mine in early March, which was expected to produce 3.3Moz (104t) in 2021.
As previously indicated, copper, lead-zinc, and gold are all byproducts of the production of other metals, including the bulk of silver. The Silver Institute predicts that this year's by-product silver production will rise largely from primary gold mines due to greater output from several current operations and the startup of Chile's silver-rich La Coipa gold project.
If enough investments aren't made to bring early-stage projects online over the longer term, four to five years out, production will start to fall. The Guatemalan Escobal mine owned by Pan American Silver, which has been shut down for maintenance since 2017, might restart with a significant effect on world production. The Silver Institute says in its World Silver Survey 2022 that community engagements targeted at a prospective restart are still in the early stages.
On the opposite side of the ledger, momentum is anticipated for the robust demand for silver in 2021. According to SI, industrial demand is anticipated to increase by 6% this year, setting a new record high. Along with the expansion of the global GDP, increasing vehicle electrification and increased investment in renewable energy, particularly photovoltaics, would enhance end-use in the green economy.
Jewelry production is predicted to increase by 11%, exceeding 2019 levels, despite the crisis in Ukraine hurting the recovery in car manufacturing and creating uncertainty, as well as the fact that photographic demand is projected to decline this year. The net physical investment will probably remain unchanged in 2022, while exchange-traded products (ETPs) are expected to increase by 778 tons, marking their fourth straight yearly increase, according to the Silver Institute.
Their popularity will probably increase due to the Securities and Exchange Board of India's decision to permit the introduction of silver ETPs last year. After the US and Germany, India is presently the world's third-largest physical silver investment market. The research claims three operational ETPs in India as of February 2022, with a total AUM (assets under management) of USD$82 million.
The institute anticipates that Indian silver investment will increase via ETPs, adding to the country's very active silver bar market, which has seen over 500Moz, or 16,000 tons, purchased over the last ten years.
The long-term demand prediction from the Silver Institute is fairly optimistic, with predicted record highs driven by silver's potential for usage in green energy and new, growing markets.
Twenty nations generated 1 GW of solar energy last year, which enabled photovoltaic (PV) installations to reach 3,5336t or almost 11% of the world's silver consumption. This happened despite an 80% drop in the amount of silver loaded into each cell during the previous ten years. As increasing capacity additions offset the negative finger width forecast to decrease by another 30% by 2025, PV silver demand is anticipated to remain high (finger width is the width of the lines of silver paste that are printed onto the front and rear of panels to collect deliver the DC).
The rise in gadgets used to operate various amenities, such as entertainment and safety systems, is mostly to blame for the increase in demand for automotive silver. Numerous connections, cables, and electronic parts used in these gadgets include silver, an excellent electrical conductor.
Electric cars are generating additional demand since they use a lot of silver in their battery packs' major electrical connectors, surrounding control modules, and as the best material for cables in onboard charging equipment. More than those with internal combustion engines, vehicles with hybrid powertrains and battery electric powertrains have greater silver loadings. The need for supplementary equipment, particularly in-home chargers and curb-side charging stations, is another factor supporting the price of silver.
According to the Silver Institute, the switch to EVs has also increased investment in autonomous driving, which has increased demand for silver-coated or silver-alloy wires that transmit huge data at high frequencies.
The automobile industry's rising demand for batteries is still exceeding supply capacity, making it difficult to get a variety of raw materials, according to SI.
Then there is the predicted 54% rise in silver demand for "printed and flexible electronics," from 48Moz in 2021 to 74Moz in 2030, or usage of 615Moz throughout this period.
According to a news release from the Silver Institute, they are "mainstays" in various electrical goods, including sensors that detect anything from moisture, relative humidity, and carbon monoxide to temperature, pressure, and motion. Additionally, they are used in consumer electronics, mobile phones, appliance displays, and medical equipment.
Due to silver's special qualities, including its high conductivity, resistance to oxidation, and anti-microbial nature, future demand is projected to come from nanotechnology in addition to its application in solar cells, industrial manufacturing, and the automotive sector.
Applications include packaging with an anti-microbial coating to extend shelf life and quality monitoring using gas sensors in the food sector. Here, oxidation of the silver might reveal the presence of gas. For instance, methane, ethanol, or ethylene measurements may be used to identify when food should be sent by indicating spoilage or ripeness, respectively.
Gas sensors may also be utilized in the medical field, where a person's breath sample might be used to diagnose illnesses like diabetes and cancer or to monitor environmental toxins like formaldehyde, often present in the paint.
Inventory dwindling
Because there is such a limited supply of silver, above-ground silver stockpiles are regularly watched for indications of depletion.
Remember that only 40% of silver is available for investment since 60% is used for industrial purposes. Nearly 80% of the 60% used for industrial purposes end up in landfills.
Oversupply of silver between 2010 and 2020 led to a cumulative increase of 9,709 tons. However, when the 1,102t supply shortfall from the previous year is added to the Silver Institute's predictions, it indicates a 9,212t loss in silver inventory from 2021 to 2026 (excluding retail investors' bar and coin holdings).
The pattern of declining commodity-exchange silver stockpiles is particularly intriguing. SI claims that due to arbitrage possibilities brought about by the local price discount, inventories at Comex-approved depositories and exchange stocks in China decreased by 1,270t in 2021.
The decline in reported (vs. unreported) silver stockpiles continued into 2022, with inventories on the Comex falling by 480t too late March and those on the London Metal Exchange falling by 934t in January and February. Stocks on the Chinese silver market are also falling. Metal Focus predicts that this year's silver market will have a 2,224-ton shortfall that must be met by the mobilization of above-ground stockpiles, as was previously noted above in bold.
Given that the amount of silver stored in the vaults of the London Bullion Market Association (LBMA) has been declining over the previous seven months, this might prove to be a difficult task. Ronan Manly, a precious metals expert with Bullion Star, gathered the data. It reveals that the amount of silver stored in LBMA vaults is now less than one billion ounces (997.4Moz or 31,023 tonnes), which is 15.4% less than it was a year before (as of the end of June) when stocks were 1.18 billion ounces (or 36,707 tonnes).
Manly points out that the LBMA's silver holdings as of June 2022 are the lowest they have been since December 2016 and the first time they have been below 1Boz since November 2016. Additionally, neither a seven-month nor a six-month stretch during which LBMA silver stockpiles declined each month continuously has ever occurred before.
Manly claims that since the London Bullion Market Association has relatively little silver available to meet investment demand, owners of silver-backed ETFs are playing it too safe.
The majority (nearly 63%) of this silver is owned by exchange-traded funds, including the iShares Silver Trust (SLV), the Wisdomtree Physical Silver ETC (PHAG), and the Aberdeen Physical Silver Shares ETF, despite the association's claim on its website that the silver and gold held in LBMA vaults "underpins the physical OTC (over the counter) market" (SIVR).
In other words, just 11,601 tonnes of the 31,023 tonnes of silver stored in LBMA vaults at the end of June, or 37.5% of the total, were not held inside ETFs, which together possess 18,835 tonnes. The quantity of silver owned by Bullion Vault and Gold Money customers is not included in this calculation. Adding this to the ETF total indicates that as of July 26, silver-backed ETFs and individual investors possessed 19,154 tonnes of the 31,023 tonnes of silver stored in LBMA vaults.
Remember that during the early 2021 "silver squeeze," the combined ETFs and BV/GM holdings accounted for 28,698 tonnes (or 922.65Moz) of silver, representing a staggering 85.4% of the silver that the LBMA claimed was in the London vaults, leaving less than 5,000 tonnes to meet all other silver demand.
This offers an estimate of how much capacity these ETFs have until they run out of London vaults to acquire silver without having to import or ship it in, Manly wrote at the time. The explanation is that there isn't really that much space.
Conclusion
Market manipulation for silver? Say it's not true! Earlier this month, three former JPMorgan traders were reportedly charged with manipulating the gold market. The three are accused of conspiring from 2008 to 2016 to engage in price manipulation, wire fraud, commodities fraud, and spoofing, in addition to racketeering. Large orders that traders cancel before they can be completed to move prices in the direction they wish to make their real transactions lucrative are known as spoofing, which was outlawed in 2010.
The created silver squeeze in the London bullion vaults Manly mentioned above comes as little surprise since it has long been thought that the silver market is also being managed.
It makes sense at this time since the silver price, down 27% from a year ago, seems to have detached from the market's fundamentals. Why is the price of silver declining while demand outpaces supply by more than 2,000 tons?
The Fed-instigated interest rate increases that have significantly dampened the price of gold and silver this year are undoubtedly a contributing factor, but this may not be the whole picture.
Increasing rates only makes sense if the economy can manage them, as we indicated in a recent piece. At some point, rising inflation and high interest rates will stifle economic development, forcing the Fed to change direction and start cutting interest rates once again.
We have more evidence than most people realize that we are getting close to this stage, and the Fed may start decreasing rates as early as autumn.
According to Bankrate's survey of the best economists in the country, researchers anticipate a severe slowdown in job creation of 193,000 on average over the next 12 months, while the unemployment rate may increase to 4.2% from 3.6%.
The Producers' Manufacturing Index is deteriorating because rising interest rates make borrowing more costly, and increasing inflation affects consumers' capacity to pay. The S&P Global Flash US PMI Composite Output Index declined for the first time in more than two years, as seen in the graphic below (26 months). Both suppliers of goods and services reported weak demand conditions.
Real-time News
