(From Capital.com, Fri. May 6th, 2022) – After hitting a six-week high at Easter, the price of silver has fallen nearly 14% to $22.4/t oz today (4 May).
Today silver had climbed up 0.2% to $22.60/t oz, tentatively pushing against the $23 barrier before falling to $22.37/t oz as the precious metal found a decreased interest in safe haven assets. Silver demand has fallen by about 23%, according to the US Mint.
Demand for precious metals has eased slightly as the US dollar strengthened, as expressed by the DXY index, moving towards at 103.1 helped by the dollar’s advancement against the euro (EUR) and the British pound (GBP).
Silver rallies on Russia-Ukraine conflict
Silver price news in recent months has been driven by expectations that the US Federal Reserve (Fed) will raise interest rates several times this year. Higher interest rates are bearish for precious metals markets, as investors tend to move their money out of metals holdings, which do not pay interest, into interest-bearing assets.
The silver spot price fell from $26.41/t oz on 1 January 2021 to $23.35 on 31 December 2021. Silver shed a further 4.1% in January 2022, making it the worst performer in the precious metals sector. Silver peaked at $24.50/t oz in the third week of January but sank to $22.39 at the end of the month.
While high inflation is typically supportive to precious metal prices, an accelerated pace of monetary tightening has weighed heavily on sentiment. But the price trend turned higher in February in response to rising Russia-Ukraine tensions.
Silver reached $24.71/t oz on 24 February, when Russia sent troops into Ukraine in a large-scale invasion, prompting a flight to safe-haven investments. The price dipped to $24.02 on 25 February on profit taking with the price at its highest level since 20 January. It rose to $24.75/t oz on the morning of 1 March as Russia ramped up its strikes on Ukrainian cities.
The Russia-Ukraine war is likely to continue driving the direction of the silver value in the near term, along with the pace of the Fed’s monetary tightening schedule. On 16 March the US Federal Reserve increased interest rates by 25 basis points and pledged a further six hikes by the end of the year.
The gold-silver ratio – the number of ounces of silver required to buy an ounce of gold – rose from an average of 78.32/t oz in December to 80.21 in January, but dropped back to 78.01 in February as silver caught up with gains on the gold market. The ratio had fallen to 65.41 in February 2021, when the silver price spiked.
On the physical silver markets, demand is expected to rise this year, potentially providing support for spot prices. The Silver Institute predicted that global demand could rise by 8% from 2021 to a record high of 1.112 billion ounces in 2022. The rise will be driven by record silver industrial fabrication, which is forecast to rise by 5% as consumption increases in traditional and green technologies.
Investment demand for physical silver bar and bullion coins is expected to jump by 13% in 2022 to a seven-year high. Demand for silver to be used in jewelry is expected to rise by 11%. Demand in silverware is forecast to climb by 21%.
Unlike gold, which is primarily an investment asset, industrial use accounts for more than half of total silver demand. The Silver Institute said:
The rapid expansion of renewable energy as governments around the world increasingly commit to carbon emissions reduction is expected to lift silver demand for solar photovoltaic panels to an all-time high.
What is your sentiment on Silver?
The silver outlook from the automotive and 5G telecom sectors remains strong, because of increasing vehicle electrification and the acceleration of 5G network infrastructure.
On the supply side, the Silver Institute projected total supply to rise by 7% to 1.092 billion ounces in 2022, with mine production ramping up to a six-year high. Primary silver mines are expected to increase their output, from large sites and new projects.
The silver market fell into a deficit in 2021 for the first time in six years, which is expected to continue this year with a shortfall of 20 million ounces, although the Silver Institute noted this is “relatively modest in absolute terms”.
Exchange-traded products (ETPs) rose by 6% to 1.132 billion ounces in 2021 and remain little changed close to record highs so far this year.
Where do analysts see the silver price in 2022? Read on for some of the latest commentary and forecasts for silver in the future.
Silver price forecast for 2022 and beyond: Where will the precious metal trade in the future?
Analysts at Zaner see the potential for a silver price rise in the near term. “In a positive overnight development for gold and silver prices, China saw better-than-expected February purchasing manager readings with economists suggesting that improvement was the result of policy support,” they wrote in a client note on 1 March.
The Silver Institute expected ongoing macroeconomic uncertainty and high inflation to prompt retail investors to increase their exposure to silver as a hedge and store of value and limit profit-taking.
“Early 2022 has seen GDP growth downgraded for several major economies, along with rising financial market volatility. This points to an increasing risk that the speed of the U.S. interest rate hiking cycle could turn out to be slower than current market expectations have allowed. As a result, silver prices should initially benefit from fresh investor interest in precious metals. Silver’s high beta should also see it outperform gold, with the gold: silver ratio projected to retreat below 70 by year’s end.”
It’s important to keep in mind that financial markets remain extremely volatile, making it difficult to accurately predict what an asset’s price will be in a few hours, and even harder to give long-term estimates. As such, analysts can and do get their predictions wrong.
We recommend that you always do your own research, and consider the latest market trends, news, technical and fundamental analysis, and expert opinion before making any investment decision.
Posted by:
Jack Dempsey, President
401 Gold Consultants LLC
jdemp2003@gmail.com