The green agenda has lifted prices across the metals sector.
To what extent it has driven physical demand rather than sentiment-driven investor activity — in the form of exchange-traded fund (ETF) buying, stockpiling or exchange position building — is debatable. It’s more of the latter than the former, we would suggest, as the main physical driver for metals remains electrification in transport. As a percentage of the whole, that remains relatively small.
But one important metal in the sector that has yet to see the same support this year is silver.
Silver price trends
After hitting a low of $24/oz back in early April, the silver price has seen a steady appreciation to just under $27.50/oz today.
However, it has still not hit the artificial eight-year high seen in January, when it reached nearly $30/oz on the back of frenzied retail investors’ demand.
Around $1 billion flowed into silver-backed ETFs on a single day in January, the Financial Times reported, after comments on the Reddit online forum WallStreetBets erroneously suggested that US investment banks were suppressing the price of the metal.
Investors were encouraged to buy into the funds to create losses for investment banks such JPMorgan, as “payback for the bailouts and manipulation,” much as they bought into the retailer GameStop to force losses on hedge funds that were betting on a fall in the share price.
The iShares Silver Trust, which is physically backed, had to increase the number of shares in issue by 37.05 million, or 6.1%, in late January. That marked the biggest one-day increase since the ETF started trading in April 2006.
Total silver holdings in ETFs now exceed a billion ounces, underling what an important factor ETFs have become in the silver market.
Rising physical demand
While inflows are slowing in 2021, physical demand for the metal is picking up.
In particular, industrial sector demand is rising. Silver goes into electronics and photovoltaic cells. The latter could see significant growth if — and it remains a significant if — President Joe Biden’s $2 trillion infrastructure plan goes ahead.
That source of potential demand notwithstanding, physical industrial silver demand is rising. Furthermore, silver could benefit from applications across the electrification spectrum.
According to the Financial Times, Standard Chartered predicts the silver price will test January’s high again this year before easing next year.
But not everyone agrees.
HSBC is taking a more cautious line. It suggests the current price is likely to be the upper limit and is expecting prices to ease sooner, down to sub-$25 by year’s end.
Silver has benefited at times from its strong industrial use. However, its volatility due to industrial demand hampers its desirability, like gold, as a hedge against inflation or as a safe haven.
While inflation fears are rising, they are doing little more than providing support to gold this year — and little for silver.
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