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.
Sticking with silver, the Silver Institute forecast global silver demand will rise by 11% in 2021.
“The outlook for silver demand is bright, with the global total forecast to achieve an eight-year high in 2021 of 1.025 billion ounces, thereby recovering all losses sustained in 2020,” the Institute said Wednesday. “This reflects expected gains in the critical segments of industrial demand, physical investment, jewelry, and silverware fabrication.”
The institute also forecast physical demand to rise to a six-year high in 2021, totaling 257 million ounces.
Furthermore, the Institute noted pandemic-related economic certainty helped drive investor interest in safe-haven metals, including silver. As a result, the average silver price surged from $16.19 in 2019 to $20.52 in 2020.
By industry, silver demand for jewelry is likely to rise as economic recoveries continue. Those recoveries, of course, are contingent on successful vaccine rollouts and prevention of the spread of newer virus variants.
After falling to $12.59 per ounce as of March 20, the silver price surged as high as $29.14 in the first half of August.
But, as Burns noted, the price did retrench thereafter, generally hovering around $27 per ounce.
“Both gold and silver retrenched yesterday,” Burns wrote Aug. 12. “Gold fell below $2,000/ounce, while silver dropped toward $27/ounce.
“But whether that will be enough to dampen spirits for a push higher in coming weeks will depend on the course of the dollar, indications on post-pandemic recovery and further action by the Fed regarding longer for lower interest rates.
“You’d be brave to bet against it.”
Since then, silver has continued to trade sideways, starting this week just under $27 per ounce before ticking up to $27.20 per ounce Wednesday.
As Burns notes, how much silver and fellow precious metal gold can continue to gain depends on the aforementioned factors.
From March 20 until the end of July, the U.S. dollar index declined by nearly 10%. Since then, the dollar has trended mostly sideways.
The index stood at 93.20 Wednesday afternoon. By comparison, the index stood at nearly 103 in late March, when the coronavirus pandemic began to significantly impact U.S. health systems and the economy.
“The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run,” the Fed said in a statement. “With inflation running persistently below this longer-run goal, the Committee will aim to achieve inflation moderately above 2 percent for some time so that inflation averages 2 percent over time and longer-term inflation expectations remain well anchored at 2 percent. The Committee expects to maintain an accommodative stance of monetary policy until these outcomes are achieved.”
Furthermore, the Fed opted to maintain the existing federal funds rate of 0-0.25%. The Fed said it will maintain the target range until “labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2 percent and is on track to moderately exceed 2 percent for some time.”
According to the most recent Consumer Price Index (CPI) reporting from the U.S. Department of Labor, the all items index increased 1.3% over the previous 12-month period.
Actual metals prices and trends
The U.S. silver price gained 15.0% month over month to $28.14 per ounce as of Sept. 1.
The U.S. platinum bar price rose 2.9% to $926 per ounce. Fellow platinum-group metal palladium gained 8.1% to $2,133 per ounce.
The U.S. gold bullion price fell 0.4% to $1,967.40 per ounce.
The Chinese gold bullion price, meanwhile, rose 0.7% to $61.81 per gram.
The MetalMiner 2021 Annual Outlook consolidates our 12-month view and provides buying organizations with a complete understanding of the fundamental factors driving prices and a detailed forecast that can be used when sourcing metals for 2021.
This past week’s metals news covered everything from silver price movements to the copper price rise’s slowdown to the reimposition of tariffs on some Canadian aluminum.
We also broke down President Donald Trump’s recent proclamation with respect to reimposing the Section 232 tariff on some Canadian aluminum. MetalMiner’s Stuart Burns delved into the concern expressed by Ontario Premier Doug Ford: could Trump target Canadian steel next?
As our readers know well by now, Trump imposed Section 232 tariffs on imported steel and aluminum of 25% and 10%, respectively, in 2018. During the course of negotiations with Canada and Mexico over the United States-Mexico-Canada Agreement (USMCA) — the successor to NAFTA — the U.S. rescinded the tariffs in May 2019.
Now, at least for unalloyed aluminum from Canada, the tariff is back.
“Early this year, the silver market was going through a tough time,” Burns wrote last month.
“Its reaction to the growing pandemic was in stark contrast to that of gold. The disconnect between the two metals rose to historic proportions, as gold rose on the back of deeply negative real interest rates and expectations, justified or otherwise, of rising inflation as a result of massive fiscal stimulus.”
Burns added the silver price could still have a ways to go.
“Silver’s case, apart from it underperforming its historic average, is the potential for it to be boosted by: the growing Chinese recovery driving demand for industrial consumption (particularly electronics and plating), its attractions as a safe-haven investment and supply constraints due to COVID-19 mining-related disruptions in Central and South America,” he added.
“One arbitrage doing the rounds these last few months was to sell gold and buy silver, largely on the historic disconnect between the two prices as gold soared and silver collapsed. But with economic activity improving and supply-side concerns not going away, silver’s continued rise has better prospects, regardless of the trajectory for gold or the fact the historic connection between the two has partially recovered.”
However, the silver price could take a bit of a breather from its upward ascent.
“Both gold and silver retrenched yesterday. Gold fell below $2,000/ounce, while silver dropped toward $27/ounce.
“But whether that will be enough to dampen spirits for a push higher in coming weeks will depend on the course of the dollar, indications on post-pandemic recovery and further action by the Fed regarding longer for lower interest rates.”
Palladium, platinum make gains
Gold and silver have made significant gains since the start of the pandemic: what about the rest of the precious metals complex?
Powered in part by recovering automotive sales, both platinum and palladium showed some life.
Palladium, for example, trended largely sideways from March through June. However, over July, the palladium bar price jumped over 5%.
It remains to be seen if the automotive market will continue in its recovery. As noted in the Automotive MMI report earlier this month, July automotive sales in the U.S. saw the recovery take a bit of a pause.
According to China Association of Automobile Manufacturers (CAAM) data released July 13, June sales rose 11.6% year over year. The July sales figure marked the third consecutive month of year-over-year sales gains in China.
The three-month positive streak followed a March year-over-year decline of 43.3%.
Actual metals prices and trends
The U.S. silver price gained 34.5% month over month to $24.47/oz as of Aug. 1.
The U.S. platinum bar price gained 9.9% to $900/oz. Meanwhile, the palladium bar price jumped 5.3% to $1,973/oz.
The U.S. gold bullion price gained 11.0% to $1,976.10/oz. The Chinese gold bullion price jumped 8.5% to $61.39/gram.
Silver’s rise has been meteoric since its low in mid-March.
The precious metal’s surge has been particularly notable over the last month.
Both gold and silver have benefited from cheap money, a weak dollar and stronger oil prices. The yield on the benchmark 10-year U.S. Treasury note is presently around 0.57%, while the oil price is holding around $42 per barrel.
Driving all commodities higher, the U.S. dollar index has slipped nearly 7% in the last three-month period. Measured against six major currencies, the dollar is down nearly 9% from its March highs and is on track for its worst month since 2011, according to a Yahoo Finance report.
Other investment products, like Bitcoin, are also up sharply.
However, gold and silver have been stealing the headlines.
Investors are betting on gold going through $2,100/ounce shortly and silver to top $30/ounce.
Unlike gold, though, the fundamentals for silver have some decent legs.
The LME has operated the LMEprecious suite of exchange-traded contracts since 2017. In a recent update note, the LME reported industrial demand for silver last year topped 16,200 tons. Furthermore, demand is forecasted to increase thanks to its role as a component in antennae for the new 5G mobile network infrastructures being rolled out around the world.
Like gold, silver benefits from the jewelry market, which is expected to pick up as economies gradually recover from lockdowns. In addition, silver has a wide range of industrial applications, which are coming back fast — first in Asia, but now in Europe and the U.S.
Looking ahead at the silver price
Two weeks ago, analysts at Goldman Sachs lifted their 12-month forecast for silver to $30 per ounce by year’s end.
However, that prediction became within reach after just a fortnight.
The bank’s prediction was based largely on the back of an expected continuing weakness in the greenback. The analysts argued a further 5% decline is probable before the year’s end. On top of that, no end is in sight for rock-bottom interest rates.
Silver’s rise has been so dramatic over the last 30 days; a pullback is to be expected.
Both gold and silver retrenched yesterday. Gold fell below $2,000/ounce, while silver dropped toward $27/ounce.
But whether that will be enough to dampen spirits for a push higher in coming weeks will depend on the course of the dollar, indications on post-pandemic recovery and further action by the Fed regarding longer for lower interest rates.
Early this year, the silver market was going through a tough time.
Its reaction to the growing pandemic was in stark contrast to that of gold. The disconnect between the two metals rose to historic proportions, as gold rose on the back of deeply negative real interest rates and expectations, justified or otherwise, of rising inflation as a result of massive fiscal stimulus.
Before we head into the weekend, let’s take a look back at the week that was and some of the metals storylines here on MetalMiner, including coverage of: automotive sales, U.S. construction spending, aluminum prices on the SHFE and LME, and gold’s growing premium over silver.
As Kitco News reported, the gold price did not react in any significant way to the recent stretch of historic unemployment claims in the U.S. — nonfarm payroll employment fell by 20.5 million in April alone, the Bureau of Labor Statistics reported — because the news was largely expected.
It remains to be seen how various states’ plans to “reopen” their economies will progress given the still-elevated number of cases and deaths in some regions of the country.
This week, however, Bloomberg reported the VIX, or volatility index, fell to a nine-week low. The VIX dropped below 30 for the first time since March 3, Bloomberg reported.
Meanwhile, CBOE’s Gold ETF Volatility Index (GVZ) was down Friday, falling to 25.62 as of Friday afternoon after opening today at 26.76. The GVZ reached as high as 54.37 this year (March 18).
Elsewhere in the precious metals basket, MetalMiner’s Stuart Burns delved into the recent surge in the gap between gold and silver prices.
In short? Investor interest in silver ETFs has gotten a boost.
“The Financial Times reports on the dramatic rise in silver ETF holdings as investors bet on a rally in silver after the gap between gold and the industrial metal soared to its widest level in more than three centuries,” Burns wrote.
“The article states that in March the price of an ounce of gold was 125 times higher than the same amount of silver — a record going back to at least 1687.
“Since then, the gap has closed to about 113 times, as silver rose to $15 per ounce; Bank of America is reported as predicting silver could top $20 over the next year.”
Top gold miners post strong Q1
Miner Newmont Corporation reported first-quarter gold production of 1.48 million ounces, up 20% from Q1 2019, “primarily due to new production from the Goldcorp assets, partially offset by the sale of Kalgoorlie in Australia and lower ore grade milled at Ahafo, Yanacocha and Merian.”
Newmont benefited from rising gold prices (gold is up approximately 12% since the start of this year).
“Average realized price for gold was $1,591, an increase of $291 per ounce over the prior year quarter; average realized price for copper was $1.56, a decrease of $1.33 per pound over the prior year quarter; average realized price for silver, lead and zinc were $14.13 per ounce, $0.64 per pound and $0.62 per pound, respectively,” Newmont said in its Q1 earnings report.
Meanwhile, Barrick Gold Corporation posted Q1 net earnings of $400 million, up from $111 million in Q1 2019.
In operational news, Barrick is currently in a dispute with the government of Papua New Guinea over its decision not to extend the lease for the Porgera gold mine. The open pit, underground gold mine is a joint venture operated by Barrick (47.5% stake), Zijin Mining Group (47.5%) and Mineral Resources Enga (5%).
“Since the end of the quarter, the government of Papua New Guinea has announced that it will not renew Barrick Niugini Limited’s 20-year Special Mining Lease for the Porgera gold mine,” Barrick said in its earnings report. “Barrick has said it will contest the move, which it regards as tantamount to nationalization without due process. In the meantime, BNL has placed Porgera on temporary care and maintenance. In addition, due to the uncertainty related to the timing and scope of future developments on the mine’s operating outlook, we are withdrawing our full year 2020 guidance for Porgera at this time.”
Last month, South African President Cyril Ramaphosa announced the extension through the end of April of lockdown measures aimed at curbing the coronavirus outbreak.
Earlier this month, however, the government began to ease restrictions, allowing for some stores to reopen (mines had already been permitted to operate at 50% as of late last month).
“Yet, while a nation-wide lockdown is probably the most effective means to contain the spread of the coronavirus, it cannot be sustained indefinitely,” Ramaphosa said April 25.
“Our people need to eat. They need to earn a living. Companies need to be able to produce and to trade, they need to generate revenue and keep their employees in employment.
“We have accordingly decided that beyond Thursday 30 April, we should begin a gradual and phased recovery of economic activity.”
Anglo American Platinumreported a 7% decline in PGM production in Q1, down to 954,800 ounces, citing South Africa’s COVID-19 mitigation measures.
Meanwhile, Impala Platinumreported a 6% drop in production for the first quarter of calendar year 2020.
“The implementation of the lockdown is estimated to have resulted in a 6% reduction in reported milled tonnage from each of Impala, Marula and Two Rivers, equivalent to approximately 26,000 ounces of 6E mine-to-market concentrate production during the quarter,” Impala said in its quarterly report.