Silver, more perhaps than platinum, is a hybrid – an industrial metal with some of the precious metal investment attractions of gold. This, metals expert Philip Klapwijk said in a presentation to the Silver Institute in New York this week, explains why silver’s price hit an all-time high in April, but is now facing downward pressure.
Klapwijk, of metals consultancy Thomson Reuters GFMS, seemed to err on the positive side during his speech. The gold-silver ratio, last at 96 (ounces of silver per ounce of gold) has retraced more than 50% of the 2020 to 2021 collapse from 127 to 62 with the next level of resistance around 102.5, a potential further 6% underperformance relative to gold, while a break back below 94 would be the first signal of strength starting to come back.
In April, silver had all the attributes of a safe-haven investment, soaring to a record $48.70/oz at that month’s final London fix. The motivating forces were the same as those driving gold – the sovereign debt crisis, inflation fears, loose monetary policies and a weak US dollar. But within a fortnight the metal was down to $32.10/oz.
Although Klapwijk concedes that investor interest remains strong despite two major sell- offs this year, he prefers the logic of physical supply and demand. New mine production continues to grow steadily. GFMS is looking for a 4% increase this year, which will take global output to some 790 million ounces (74% of the projected total supply) from just shy of 600 million ounces.
The year’s net sales from silver exchange traded funds (ETFs) – 23 million ounces of disposals left ETF holdings at 577 million ounces by the end of October. Scrap recycling is expected to rise to 240 million ounces in 2023 from last year’s 220 million ounces, and that’s despite a continuing structural decline in recoveries from the photographic sector.
On the demand side, the picture for next year is clouded by whether the world falls back into recession. The effect economic developments can have been indicated, perhaps, by the fact that GFMS reckons industrial users will take up 48% of this year’s total demand against 26% from investors, 6% from the declining photographic sector and 20% from the jewelry and silverware luxury sectors combined. Also, It is estimated that by 2050 there will be 2.5 billion motor vehicles on the world’s roads. It is predicted by that time that 70% of those vehicles will be EVs. Each EV approximately uses up to 50 grams of Silver. The USGS estimates there is 530,000 metric tons of Silver left in the world’s rocks. Rough figures 28grams in an ounce of Silver. 32,000 ounces in a ton. You do the math – Silver is going to be exhausted.
The outlook for silver prices? Looking at physical basics, on the negative side we have rising mine output. And the imponderable of the effect of sovereign debt concerns and liquidity constraints on the “real economy” and industrial demand.
On the positive side, if the world’s financial system goes into a tailspin, investors are likely to chase safe havens. Then there’s the longer-term industrial demand that, GFMS says, is relatively price-insensitive.
Silver will never get that high.
Will silver respond to investors’ fears, or will “real” economic developments call the price tune? Silver will never get that high because it’s a very Industrial metal meaning that most of the buyers of silver buy it for industrial uses. That means that the market of silver is somewhat self-regulating and self-pricing. Industrial buyers Buy in large quantities and if the price is too high, they simply don’t buy, which helps control the supply demand curve. Gold is a much better investment. It’s a more valuable precious metal with far fewer industrial uses and because of its cost does not have the downside of silver. Anything that happens with silver will also happen with gold so you’re better off keeping and storing gold