Silver

Silver prices skyrocketed on Monday, hitting an 11-month high.

Silver price hits 11-month high

The silver price hits 11-month high. Source: MetalMiner analysis of @StockCharts.com data.

It is difficult to find a fundamental reason for such a price increase. It seems like silver is simply catching up with gold. Gold surged to a one-year high back in February and, ever since, the yellow metal hasn’t moved much, as if it was waiting for silver to close the gap.

Gold to silver ratio falls

The gold-to-silver price ratio falls. Source: MetalMiner analysis of @StockCharts.com data.

And the gray metal has done so. The gold-to-silver ratio has come down to more normal levels after rising to multiyear highs in February when gold prices surged.

Gold Gets Company

The truth is that gold is not moving up alone anymore, since this is not just about investors looking for safe haven. Commodity markets are showing the first signs of recovery.

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A weaker dollar and rising oil prices in Q1 lured investors into commodity markets this year. Not only gold but the rest of the precious metals, as dollar-denominated commodities are getting a boost over the past few months.

Platinum and Palladium Join the Party

Platinum (in red) and Palladium (in blue) recovering

Platinum (in red) and Palladium (in blue) are also recovering. Source: @StockCharts.com.

Will the Uptrend in Precious Metals Continue?

That will strongly depend on what the dollar and oil prices do from now on. The recovery in oil prices since February is encouraging, especially since prices are managing to hold their value this week despite bearish news after major oil producers supplying nearly half of global output ended their meeting in Doha, Qatar, over the weekend without reaching an agreement to cap production.

If oil prices continue to climb despite the bearish news, that would be a bullish development, suggesting that underlying supply/demand fundamentals might, indeed, be improving.

Dollar weakens in 2016

The U.S. dollar weakens in 2016. Source: MetalMiner analysis of @StockCharts.com data.

Another key factor to watch is the U.S. dollar, which will likely move in the opposite direction to oil prices. The interest rate stimulus policies that major world banks take through the year will be decisive in the value of the dollar and the rest of wold currencies.

Free Download: The April 2016 MMI Report

The U.S. dollar index is approaching new key support levels that if broken, would be another indication that commodity markets are set to continue improving.

Mitchell J. Krebs. Source: Coeur Mining.

Source: Coeur Mining.

Mitchell J. Krebs has been the President and CEO of Coeur Mining, Inc., the world’s ninth-largest silver producer, since 2011. Coeur is also a major player in gold mining and has some 2,005 employees in the U.S., Mexico and Bolivia. Coeur markets its silver and gold concentrates to third-party refiners and smelters in the U.S., China, and Japan. From 2013 to 2015 Krebs oversaw a 22% year-over-year all-in sustaining cost reduction that significantly lowered the Chicago-based company’s bottom line. Those moves are being credited with helping Coeur stock take off since the Q1 2016 surge in silver prices. He recently spoke with MetalMiner’s Jeff Yoders on the phone about the silver market and what is impacting prices on both the supply and demand sides.

Free Download: The April 2016 MMI Report

Jeff Yoders: It’s been a good quarter for Coeur, how have the recent price increases impacted the company?

Mitch Krebs: We have seen strong returns. Our business and our financial results are very tightly wound with the prices of silver and gold. In the first quarter, we saw silver go up about 11% and gold up about 17%, that goes right down to our bottom line. We have been really successful at reducing our costs over the last three years, so our revenue line is going up as our cost line is going down, our cash flow has gone up in multiples as a result our stock price climbing 120% on the year-to-date. That leverage in the change in the silver price is significant. Read more

In the first two months of 2016, gold was the market’s MVP but, as we noticed in March, the silver price has started to play catch up.

Free Download: The April 2016 MMI Report

The gray metal recently hit a 10-month high after closing above $16 per ounce, while gold has traded flat over the past two months.

Silver hits 10-month high

Silver hits a 10-month high. Source @StockCharts.com.

Silver keeps outshining gold thanks to the same factor we pointed out in March: Oil prices making a comeback have boosted demand for silver’s industrial uses. Gold is not used nearly as much in cars, solar panels and gadgets as silver is.

Oil Holds Near $40 a Barrel

Oil manages to hold above $40-barrel

Oil is managing to hold above $40 a barrel. Source: @StockCharts.com.

Oil prices have, so far, successfully fought off bears when they were attacked earlier this month. Oil has a huge role in the world’s economy. Higher oil prices are giving relief to market participants who were worried by its continuous fall. That helped metal prices rise in Q1. Silver’s price strength is clearly coming from its economically-sensitive role as an industrial metal.

Stock Market Rally Remains Intact

S&P 500 rising non-stop. Will it overcome last year's levels?

The S&P 500 rising non-stop. Will it overcome last year’s levels? Source: @StockCharts.com.

Thanks, in part, to healthier oil prices global markets have been gaining since mid-February and while this rally lasts, money keeps rotating out of safe-haven assets such as gold and bonds. Silver is less impacted than gold in this way, and that also helps silver outperform it.

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Stock markets in the U.S. are acting particularly strong and, so far, they have avoided any price pullback. We will keep a close eye on stock markets and see if they can continue to go up from here as sellers could come into the market soon as prices approach last year’s levels.

Is Silver Set to Continue Gaining Against Gold?

The gold-to-silver ratio falling since March amid global stock market and industrial metals recovery

The gold-to-silver ratio has been falling since March amid a global stock market and industrial metals recovery.  Source: @StockCharts.com.

Not necessarily. But while the factors explained above keep moving in a positive direction, silver will continue to benefit. We’ll see if the rally in the base metals complex and the accompanying one in stock markets extends into Q2.

This week we saw oil prices climb back above $40 a barrel and that triggered higher prices for most of our metals, too.

Free Download: The April 2016 MMI Report

There’s a big meeting of the Organization of Petroleum Exporting Countries this weekend and all signs point to a continued freeze in production, at least among major producers Russia and Saudi Arabia so many speculators and market watchers are becoming bullish on oil. Oh, how quickly they turn!

Oil and Inflation

A direct knock-off of this oil mini surge is price inflation of everything that oil is used to produce, whether as a base material or for transport and production costs. What’s our favorite industrial metal that also has investment potential and is still considered so downright precious?

That’s right, silver! Despite being mined with just about every other metal in the world silver is still a precious metal and its industrial uses combined this week with investors grabbing it up to create a sweet spot for the gray metal. As of this writing it’s riding a 10-month high and looking to gain even more.

Aluminum Still Lags

However, not all metals are enjoying a healthy rebound. Alcoa, Inc. reported first quarter results this week and things weren’t so good for the aluminum smelter. How bad was it? Profits fell 92%. So, yeah, pretty bad.

Our own Stuart Burns put virtual pen to paper and explained that, thanks to Chinese overproduction and stockpiling, smelting aluminum simply isn’t a good business to be in right now. He even called it “an industry on the cusp of shooting itself in the foot.”

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If there’s a better example of why Alcoa will soon split itself into two and CEO Klaus Kleinfeld will join the new aerospace, titanium and value-added products half, I haven’t seen it.

Copper Loses All its Gains

My colleague Raul de Frutos also examined why copper has underachieved this year, even amidst the Q1 base metals rally. Dr. Copper is apparently only starting on the back nine and didn’t do any real work in Q1. We’ll monitor the situation with the rest of the base metals in Q2.

In March and February, gold prices — whether U.S., Indian or Chinese — were the standout performers, with some even nearly doubling in value as investors stocked up on the hard currency as a haven from a falling U.S. dollar and other global economic turmoil.

Compare Prices With The March 2016 MMI Report

But that’s not the case this month. Gold lost value in all the markets we track, a predictable pullback from its runaway performance during most of the first quarter. The precious metal that’s pacing the globe and keeping our sub-index positive is silver, helping the sub-index achieve a 1.2% increase.

Global-Precious-Metals_Chart_April-2016_FNL

Sure, the platinum group metals were predictably positive, too, but silver’s unique position as both an investment and industrial metal allowed it to gain in all the markets we track and its future potential is stronger as safe haven status doesn’t make up such a huge part of its value as with its cousin, gold.

Secondary Mining, Primary Industrial Usage

Silver is mined alongside just about every industrial metal in the world and selling it has been padding the profits of base metal miners during the first quarter. U.S.-based primary silver producer Coeur Mining reported Q1 production of 3.4 million ounces of silver and slightly more than 78,000 ounces of gold. That was in line with expectations, as the company transitions to lower-tonnage, higher-grade, higher-margin underground operations from two ore sources, Guadalupe and Independencia in Mexico.

The electronics uses of silver are pushing miners to bet their future on the metal as its still the world’s best conductor of electrical current and heat. Electronics in automobiles such as Tesla Motorsnew Model 3 “affordable” electric car will require more silver than any automobile on the road today. And electronics are already invading the comfort of our conveyances more than ever before.

Free Sample Report: Our April Metal Buying Outlook

When you add electrical transmission and use in renewables to silver’s demand side equation it’s easy to understand why its global prices could easily keep rising independently of its performance as an investment.

What This Means for Metal Buyers

Continue to expect silver and PGMs to experience strong demand independent of investment potential. Gold could still gain back its losses but its prospects, long-term, are not as strong.

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The price rally we’ve been cautiously documenting continued this week as cold-rolled coil took off and gained separation from its sister steel product, hot-rolled coil.

Free Download: The March 2016 MMI Report

CRC is feeling the burn from massive 265% import duties on Chinese imports. You think we got our point across with those tariffs? You listening, China?

Cold-rolled coil is gaining some separation from hot-rolled coil.

Cold-rolled coil is gaining some separation from hot-rolled coil. Source: MetalMiner.

CRC may have been the big winner in industrial metals this week, but it’s not the only winner. Silver is making strides and catching up to gold. Unlike with gold, it’s not investors buoying it, either, it’s good ol’ industrial usage.

Hi-Ho, Silver!

Silver’s in your cell phone, your car and lots of other manufacturing applications. Forget to turn off your plasma television? Just push a button and silver’s there to get that job done for you.

Reuters_silver_971_032316

Silver’s rocky road is finally pointing up. Source: Reuters.

Silver and gold both have strong investor appeal right now and look like they’ll keep rising so long as that sentiment exists.

DUC, DUC Goosing Oil Prices

Okay, sure, higher oil prices helped silver gain some traction this week, too, but that doesn’t make silver any less of a workhorse. Higher oil prices helped all the metals this week. With prices now above the $40 per barrel psychological threshold, U.S. drillers have opened their drilled but uncomplete (DUC) wells and are starting to see profits from these dormant assets.

With DUCs pumping out oil here in the U.S., oil prices likely won’t be able to rise much further, but could still keep their recent gains. As we’ve said before, global oil supply and demand is a complicated game with many levers of power, but U.S. production is a big one.

Chinese Steel Overproduction Continues

Despite the good sentiment from rising prices, the overproduction of steel still looms over suppliers and manufacturers. We visited Steel Markets North America last week, and witnessed a talk by Terance Ko, of Hatch Associates.

Free Sample Report: Our March Metal Buying Outlook

There’s not much hope of China decreasing steel overproduction any time soon. The 100-150 million planned reduction, Ko said, likely won’t make enough of a dent in current overproduction to be felt anytime soon. Maybe tariffs will have to work where economics doesn’t.

During the first six weeks of 2016, gold was the market’s rock star. The yellow metal rose more than 20% from its lows, hitting a 1-year high.

Free Download: The March 2016 MMI Report

Such a surge was caused by the weakening U.S. dollar, a selloff in oil prices and yet another in global stock markets. Over that period, gold significantly outperformed silver thanks to its safe-haven appeal.

Gold-Silver ratio peaks in March amid global markets and industrial metals recovery

The gold-to-silver ratio peaks in March amid global stock market and industrial metals recovery. Source: MetalMiner analysis of @StockCharts.com data.

But since mid-February there were some factors that made silver outshine gold.

Oil Price and Base Metals Rebound

Oil Prices recovery since mid- February_opt

Source: MetalMiner analysis of @StockCharts.com data.

Oil prices made a nice comeback over the past five weeks. This recovery in oil prices gave some relief to market participants who were worried by their continuous fall.

Industrial metals ETF (DBB) rising

Industrial metals ETF (DBB) rising. Source: MetalMiner analysis of @StockCharts.com data.

These developments also helped push industrial metals prices higher. Unlike gold, silver has industrial applications, so the recent strength in the base metal complex helped silver outperform gold over the past few weeks.

Stock Markets Recover (For Now)

S&P 500 index bouncing off lows since February

S&P 500 index has been bouncing off its lows since February. Source: MetalMiner analysis of @StockCharts.com data.

Thanks, in part, to healthier oil prices, global markets have been gaining since mid-February. That allowed money to rotate out of safe-haven assets like gold and bonds. Silver was less impacted than gold in this way, also causing silver to outperform it.

Will Silver Continue to Gain Against Gold?

That will likely depend on how far can the recent rally in the base metal complex and stock markets extends. However, both markets seem prone to a pull back which will likely cause silver prices to come down.

Free Sample Report: Our March Metal Buying Outlook

Also, buyers should watch the dollar’s movements. A stronger dollar would hurt both precious metals.

Reuters_Net_Position-of-silver_550_032316

Net position of silver. Source: Reuters.

Net positions in silver have increased with prices of all industrial metals but this precious metal still hasn’t taken off like gold has. Net speculative positions are finally rising again.

SilverChartoftheWeekSilver prices hit a 3-month high on Tuesday. The move is encouraging and prices could continue to rally in the short-term, but the metal remains in a long-term downtrend. Silver will likely have a hard time reaching $17.50 per ounce. Gold prices are still lagging. Source: MetalMiner analysis of @StockCharts.com data.

Although physical demand in China and India have picked up, gold prices remain at low levels and are unable to make substantial upside moves.

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We really don’t pay that much attention to gold’s demand because gold is the only commodity where physical annual demand is only a tiny fraction of total supply available. Unlike base metals, where physical demand plays a big role because of their industrial uses, shortages of gold caused by physical demand never happen.

For this reason, the price of gold is almost entirely dependent on the factors that drive traders’ psychology, such as inflation and the dollar. Despite all that, we still see analysts writing lengthy reports analyzing factors with zero predictability, such as jewelry usage and annual gold production.

Gold since 2014

Gold struggling to overcome resistance at $1,160 per ounce. Source: MetalMiner analysis of @StockCharts.com data.

Since August, gold prices haven’t moved much. They have traded between $1,160 per ounce and $1,080 an ounce. As we pointed out in July,  gold broke a key support level and now prices have some resistance to overcome before they can attempt to advance.

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Gold is considered a safe-haven asset and certainly equity markets are not in their best shape at the moment. However, it’s hard to imagine gold prices rising while commodities markets, overall, fall and the dollar is strong. The same applies to silver, which is showing the exact same behavior.

SIlver struggling to break above resistance at $15.6/oz

Silver struggling to overcome resistance at $15.6 an ounce. Source: MetalMiner analysis of @StockCharts.com data.

What This Mean For Metal Buyers

Gold and silver prices remain weak and it’s difficult to see them increasing while commodities keep falling and the dollar remains strong. Buyers should keep an eye on $1,160 per ounce and $15.6 an ounce levels. A break above these levels would signal a change in the direction of the short-term trend.