Silver could hit US$19/oz this year, but gold ratio to stay high

Silver could hit US$19 per ounce this year on growing investment buying even as the COVID-19 virus weighs on industrial demand for the metal.

That is the conclusion of Phillip Newman of Metals Focus, the research firm that compiled the Washington-based Silver Institute’s latest report, World Silver Survey 2020.

Silver is currently trading at slightly over US$15/oz.

But Mr Newman, in an interview given after the report’s release, warned that even with his price forecast, that would mean silver is still underperforming gold, with the gold-to-silver ratio remaining at a still high 1:90.

In March silver prices dropped by 16%, according to figures compiled by London-based Capital Economics – a slump in line with falls in prices for industrial metals as factories closed around the globe.

The release of the silver survey comes a day after Bank of America projected 18 months from now the gold price would reach US$3,000/oz.

Overnight, Denmark’s Saxo Bank head of commodity strategy Ole Hansen said gold would hit a new record price in 2021 of US$4,000/oz.

Investors upped silver stakes in 2019

The survey shows that global silver demand was pushed higher in 2019, with a 12% increase in investment from retail and institutional buyers.

The Silver Institute said this was due to those investors focusing on “the long-term investment appeal of the white metal”.

Total global demand for silver in 2019 rose 0.4% despite the ongoing global trade war affecting many industries.

However, silver’s use in photovoltaics grew by 7% to its second highest annual level.

Going positive on the white metal

Money managers’ net positions in Comex silver futures went from being short over much of 2018 to consistently positive in the second half of 2019.

Coins and medals saw demand rise 13% in 2019 compared to 2018’s figures, rising to 97.9 million ounces (Moz). Bar demand remained “solid” at 88.2Moz.

The Silver Institute said that the turnaround in investor sentiment last year was “dramatic”.

In 2019, silver turnover on most commodity exchanges was higher.

A sharp rebound on the Shanghai Futures Exchange in September and December saw its volumes briefly exceed Comex’s in those months.

Gold-to-silver ratio reflected ‘lacklustre’ fundamentals

April 2019 saw institutional investors go cold on silver, and net short positions rose to 190Moz (or 5,991 tonnes) by late May.

“On top of an unfavourable macroeconomic backdrop for precious metals investment, silver’s lacklustre fundamentals and concerns over industrial output weighed on investors’ interest,” the survey said.

Over the same period, bearish price expectations also encouraged some tactical investors to increase their short positions.

“This, in turn, helps to explain a sharp rise in the gold:silver ratio at that time.”

Then, from late February this year, there was panic selling of silver amid investors rushing to raise cash.

“The situation was further exacerbated by silver’s high volatility at a time when many investors were reluctant to hold the metal when faced with an equity and bond market rout,” the survey stated.

Supply is being squeezed

Global mined silver production was down for a fourth consecutive year in 2019 – with a fall of 1.3% to 836.5Moz.

“This was a result of declining grades at several large primary silver mines and disruption-related losses at some major silver producers,” the institute noted.

Primary silver production (which excludes silver mined as a by-product) fell by 3.8% last year to 240Moz.

The largest country declines were led by Peru, followed by Mexico and Indonesia; these were partially offset by gains in mine output in Argentina, Australia and the US.