Gold isn’t the only precious metal benefiting from economic uncertainty and the crisis in the banking sector. Silver prices last month climbed to their highest in a year, with room to move higher as the global market for the metal this year looks to post its second-largest supply deficit in 20 years.
“Demand for physical silver, and gold for that matter, is showing overall investor concern over the state of the economy, geopolitical turmoil, and potentially persistent inflation,” said Stephen Gardner, director at ETF Managers Group, the issuer of the ETFMG Prime Junior Silver Miners exchange-traded fund SILJ, +1.44%.
“The risks are creating a growing willingness to park money in safe-haven assets,” he said. Also, the U.S. dollar strength that served as a headwind to precious metals during most of last year has been easing since October, he said.
The most-active contract for Comex silver futures SI00, 2.53% SIN23, 2.53% settled as high as $25.93 announced on April 13, the highest since April 2022, according to Dow Jones MarketData. Prices finished on Wednesday at $25.68.
Year to date performance for Comexsilver futures Silver Continuous Contract Source: FactSet
2023May1820222426$28
Gold GC00, 1.00% GCM23, 1.00%, meanwhile, trades near its highest recorded price levels, settling Wednesday at $2,037, compared with the record most-active contract settlement of $2,069.40 from Aug. 6, 2020.
Gold and silver prices are showing “fear and uncertainty in the U.S. dollar system,” said Keith Weiner, chief executive officer and founder of Monetary Metals.
“Those with dollars realize they are at risk of losing them,” he said. That almost happened with Silicon Valley Bank and Signature Bank, and the “powers that be came to the depositors’ rescue, but no one can be certain this will hold true going forward.”
“Now is the time of heightened risk,” said Weiner. Gold and silver are money and people buy them to “avoid credit risk.”
The ICE U.S. Dollar index DXY, 0.07%, a gauge of the dollar’s strength against a basket of major currencies, trades around 2% lower year to date, providing some support for dollar-denominated prices of gold.
“Investors continue to flee volatile supply assets” like the dollar, and seek “fixed supply assets like silver,” said Will McDonough, co-founder and chief executive officer of EMG Advisors. “This is a clear signal that the U.S. dollar has devalued and is no longer the safe-haven asset it once was, and that investors seek security in metals and physical tangible materials they know have rising demand and predictable supply.”
Gold is “less applicable” to today’s economy, said McDonough, given that the yellow metal has no correlation to money supply anymore and has few industrial uses. Silver, on the other hand, has far more industrial uses – and copper much more so, he said, adding that EMG Advisors predicts rising interest in copper as the “green metal anchoring electrification.”
Silver, meanwhile, is “split” between investment demand and industrial demand, says ETFMG’s Gardner. Gold typically rises more so than silver at the onset of economic fears, and silver’s monetary component has led to its outperformance of copper, he said.
Year to date as of Wednesday, gold futures have climbed 11.5% and silver’s up 6.8%, while copper HG00, 0.35% HGN23, 0.35% has lagged with a more modest 0.9% gain.
The current ratio of gold to silver is around 79 to one, meaning it would take roughly 79 ounces of silver to buy once ounce of gold. That’s relatively high by historical standards, but the ratio has fluctuated quite a bit in the last couple of years. When asked to discuss the price ratio, Weiner said that in the short term, the market is “reasonably well balanced,” and that over the long term, silver is likely to outperform gold.”
Record silver demand last year contributed to a global supply deficit of 237.7 million ounces in 2022, the second annual deficit in arow, and “possible the most significant deficit on record,” according to the Silver Institute’s 2023 World Silver Survey, researched and produced by Metals Focus, released in April.
Total global silver demand grew by 18% to 1.242 billion ounces last year, with demand from the industrial segment posting a record of 556.5 million ounces, according to the survey. Global silver supplies, meanwhile, were little changed as mine production in Peru took a hit due in part to social unrest, while production in Mexico, Argentina and Russia climbed. Total supplies were a 1.0047 billion ounces last year from 1.0045 billion in 2021, the survey showed.
The World Silver Survey shows expectations for another “sizable” deficit in global silver supplies this year of 142.1 million ounces, which it says would be the “second-largest deficit in more than 20 years.” It expects that global silver inventories by the end of 2023 will have fallen by 430.9 million ounces from their end-2020 peak. That’s equivalent to more than half of annual mine production, it said.
The imbalance between silver supply and demand, which started in 2021, pared with the expectation that the Federal Reserve will pause interest-rate hikes later this year will be a “tailwind for the silver price,” said Gardner.
He said outflows of physical silver and gold exchange-traded funds had slowed from the middle of last year into year-end, which he believes indicates that “sentiment is changing from hated and out of favor to more optimistic, which we’re seeing in the recent performance” for the metals.
Looking ahead, according to the World Silver Survey, silver prices may move “broadly sideways over the next few months, before “suffering liquidations in the second half of the year.” By the fourth quarter, prices may trade in the low $18s, it said, and the full-year average price will likely be $21.30, which is 2% lower year on year.
Near term, Monetary Metals forecasts silver prices close to $28, and gold at $2,200 an ounce, said Weiner. That suggests record-high futures price for gold, and the highest futures price for silver since mid-2021.
“Supply-and-demand factors suggest prices are likely to rise,” said Weiner, but “conditions change daily.”
