Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
PAYPAL WARNING - Your Stimulus Funds Are at Risk of Being Frozen for 6 Months! - 5th Apr 20
Stocks Hanging By the Fingernails? - 5th Apr 20
US Federal Budget Deficits: To $30 Trillion and Beyond - 5th Apr 20
The Lucrative Profitability Of A Move To Negative Interest Rates - Pandemic Edition - 5th Apr 20
Visa Denials: How to avoid it and what to do if your Visa is denied? - 5th Apr 20 - Uday Tank
WARNING PAYPAL Making a Grab for US $1200 Stimulus Payments - 4th Apr 20
US COVID-19 Death Toll Higher Than China’s Now. Will Gold Rally? - 4th Apr 20
Concerned That Asia Could Blow A Hole In Future Economic Recovery - 4th Apr 20
Bracing for Europe’s Coronavirus Contractionand Debt Crisis - 4th Apr 20
Stocks: When Grass Looks Greener on the Other Side of the ... Pond - 3rd Apr 20
How the C-Factor Could Decimate 2020 Global Gold and Silver Production - 3rd Apr 20
US Between Scylla and Charybdis Covid-19 - 3rd Apr 20
Covid19 What's Your Risk of Death Analysis by Age, Gender, Comorbidities and BMI - 3rd Apr 20
US Coronavirus Infections & Deaths Trend Trajectory - How Bad Will it Get? - 2nd Apr 20
Silver Looks Bearish Short to Medium Term - 2nd Apr 20
Mickey Fulp: 'Never Let a Good Crisis Go to Waste' - 2nd Apr 20
Stock Market Selloff Structure Explained – Fibonacci On Deck - 2nd Apr 20
COVID-19 FINANCIAL LOCKDOWN: Can PAYPAL Be Trusted to Handle US $1200 Stimulus Payments? - 2nd Apr 20
Day in the Life of Coronavirus LOCKDOWN - Sheffield, UK - 2nd Apr 20
UK Coronavirus Infections and Deaths Trend Trajectory - Deviation Against Forecast - 1st Apr 20
Huge Unemployment Is Coming. Will It Push Gold Prices Up? - 1st Apr 20
Gold Powerful 2008 Lessons That Apply Today - 1st Apr 20
US Coronavirus Infections and Deaths Projections Trend Forecast - Video - 1st Apr 20
From Global Virus Acceleration to Global Debt Explosion - 1st Apr 20
UK Supermarkets Coronavirus Panic Buying Before Lock Down - Tesco Empty Shelves - 1st Apr 20
Gold From a Failed Breakout to a Failed Breakdown - 1st Apr 20
P FOR PANDEMIC - 1st Apr 20
The Past Stock Market Week Was More Important Than You May Understand - 31st Mar 20
Coronavirus - No, You Do Not Hear the Fat Lady Warming Up - 31st Mar 20
Life, Religions, Business, Globalization & Information Technology In The Post-Corona Pandemics Age - 31st Mar 20
Three Charts Every Stock Market Trader and Investor Must See - 31st Mar 20
Coronavirus Stocks Bear Market Trend Forecast - Video - 31st Mar 20
Coronavirus Dow Stocks Bear Market Into End April 2020 Trend Forecast - 31st Mar 20
Is it better to have a loan or credit card debt when applying for a mortgage? - 31st Mar 20
US and UK Coronavirus Trend Trajectories vs Bear Market and AI Stocks Sector - 30th Mar 20
Are Gold and Silver Mirroring 1999 to 2011 Again? - 30th Mar 20
Stock Market Next Cycle Low 7th April - 30th Mar 20
United States Coronavirus Infections and Deaths Trend Forecasts Into End April 2020 - 29th Mar 20
Some Positives in a Virus Wracked World - 29th Mar 20
Expert Tips to Save on Your Business’s Office Supply Purchases - 29th Mar 20
An Investment in Life - 29th Mar 20
Sheffield Coronavirus Pandemic Infections and Deaths Forecast - 29th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast - Video - 28th Mar 20
The Great Coronavirus Depression - Things Are Going to Change. Here’s What We Should Do - 28th Mar 20
One of the Biggest Stock Market Short Covering Rallies in History May Be Imminent - 28th Mar 20
The Fed, the Coronavirus and Investing - 28th Mar 20
Women’s Fashion Trends in the UK this 2020 - 28th Mar 20
The Last Minsky Financial Snowflake Has Fallen – What Now? - 28th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast Into End April 2020 - 28th Mar 20
DJIA Coronavirus Stock Market Technical Trend Analysis - 27th Mar 20
US and UK Case Fatality Rate Forecast for End April 2020 - 27th Mar 20
US Stock Market Upswing Meets Employment Data - 27th Mar 20
Will the Fed Going Nuclear Help the Economy and Gold? - 27th Mar 20
What you need to know about the impact of inflation - 27th Mar 20
CoronaVirus Herd Immunity, Flattening the Curve and Case Fatality Rate Analysis - 27th Mar 20
NHS Hospitals Before Coronavirus Tsunami Hits (Sheffield), STAY INDOORS FINAL WARNING! - 27th Mar 20
CoronaVirus Curve, Stock Market Crash, and Mortgage Massacre - 27th Mar 20
Finding an Expert Car Accident Lawyer - 27th Mar 20
We Are Facing a Depression, Not a Recession - 26th Mar 20
US Housing Real Estate Market Concern - 26th Mar 20
Covid-19 Pandemic Affecting Bitcoin - 26th Mar 20
Italy Coronavirus Case Fataility Rate and Infections Trend Analysis - 26th Mar 20
Why Is Online Gambling Becoming More Popular? - 26th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock Markets CRASH! - 26th Mar 20
CoronaVirus Herd Immunity and Flattening the Curve - 25th Mar 20
Coronavirus Lesson #1 for Investors: Beware Predictions of Stock Market Bottoms - 25th Mar 20
CoronaVirus Stock Market Trend Implications - 25th Mar 20
Pandemonium in Precious Metals Market as Fear Gives Way to Command Economy - 25th Mar 20
Pandemics and Gold - 25th Mar 20
UK Coronavirus Hotspots - Cities with Highest Risks of Getting Infected - 25th Mar 20
WARNING US Coronavirus Infections and Deaths Going Ballistic! - 24th Mar 20
Coronavirus Crisis - Weeks Where Decades Happen - 24th Mar 20
Industry Trends: Online Casinos & Online Slots Game Market Analysis - 24th Mar 20
Five Amazingly High-Tech Products Just on the Market that You Should Check Out - 24th Mar 20
UK Coronavirus WARNING - Infections Trend Trajectory Worse than Italy - 24th Mar 20
Rick Rule: 'A Different Phrase for Stocks Bear Market Is Sale' - 24th Mar 20
Stock Market Minor Cycle Bounce - 24th Mar 20
Gold’s century - While stocks dominated headlines, gold quietly performed - 24th Mar 20
Big Tech Is Now On The Offensive Against The Coronavirus - 24th Mar 20
Socialism at Its Finest after Fed’s Bazooka Fails - 24th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock and Financial Markets CRASH! - 23rd Mar 20
Will Trump’s Free Cash Help the Economy and Gold Market? - 23rd Mar 20
Coronavirus Clarifies Priorities - 23rd Mar 20
Could the Coronavirus Cause the Next ‘Arab Spring’? - 23rd Mar 20
Concerned About The US Real Estate Market? Us Too! - 23rd Mar 20
Gold Stocks Peak Bleak? - 22nd Mar 20

Market Oracle FREE Newsletter

Coronavirus-bear-market-2020-analysis

Hi-yo Silver Away!

Commodities / Gold & Silver 2019 Dec 27, 2019 - 06:13 AM GMT

By: Richard_Mills

Commodities

Silver is expected to begin the next decade newly burnished, through a combination of higher industrial and investment demand, and tightened supply owing to mine production issues and output cuts. 

As December winds down and precious metals trade volumes dwindle, market analysts including us at Ahead of the Herd are crunching the numbers from 2019 and looking ahead to what the New Year might bring. 


A banner year 

Without hesitation we can say that 2019 has been an excellent year for gold and silver. Both metals traded flat during the first half, then bolted significantly higher after the US Federal Reserve reversed course and began cutting interest rates instead of raising them. Starting in July, the Fed lowered rates three times before freezing the (benchmark) federal funds rate at a range of 1.5 - 1.75% in November. 

That, along with similarly dovish policies among other central banks, a record $17-trillion of negative-yielding sovereign bonds, and fresh safe haven demand due to tensions with Iran, and a lack of progress on trade talks, to name two key issues, powered precious metals to new heights. 

Spot gold and silver both peaked in early September at a respective $1,552.00/oz and $19.67/oz. Metals Focus, a precious metals firm quoted by Kitco, estimates silver will average 3% higher this year compared to 2018. While gold has outperformed silver over the past 12 months, rising around 15% to silver’s 11%, some market observers are picking silver to be the precious metal to beat in 2020. 

One analyst who spoke to Kitco is sanguine on silver due to its industrial component. “We are optimistic on the prospect for gold, but we think it will pay off more for those who are to purchase silver. We think the industrial demand side of the equation will improve later in the year,” a commodities strategy at TD Securities said earlier in the week

The same analyst thinks the gold-silver ratio in 2020 could improve for silver - although the current ratio of 86:1 is below the 26-year high reached in June. 

The gold-silver ratio is simply the amount of silver one can buy with an ounce of gold. To find the ratio, divide the current gold price by the price of silver.

On June 12, the gold-silver ratio hit a 26-year high by breaking through the 90-ounce mark - meaning it took over 90 ounces of silver to purchase one ounce of gold. The higher the number, the more undervalued is silver or, to put it another way, the farther gold is pulling away from silver, valued in dollars per ounce. 

The gold-silver ratio tells us, as precious metals investors, which is under-valued (or over-valued), silver or gold? For example at the current ratio of 86:1, a trader who has an ounce of gold could sell his gold for 86 ounces of silver.

The main factors that will determine silver’s fate next year, are whether or not there is a full resolution to the US-China trade war (a complete deal, to follow the recent phase-one agreement, would be bullish for the world economy, and boost demand for all metals including silver); global growth prospects, particularly in sickly Europe; the relative strength of the US dollar; bond yields; and whether central banks continue to keep a firm lid on interest rates. 

Since very little gold is used by industry, it trades as an investment commodity - moving up and down in relation to factors like the dollar, inflation, interest rates and sovereign bond yields. 

It’s estimated around 60% of silver is utilized in industrial applications, leaving only 40% for investing. And of the 60% demanded by industry, 8 of 10 ounces is either used up in manufactured products, or discarded in landfills.

This also explains silver’s volatility. Because the investment market for silver is so small (60% is locked up in industrial uses) it swings up and down wildly with relatively low volumes. A lower dollar and continued economic and political turbulence (consider the upcoming Brexit date and the unfolding impeachment process in the US) would support silver prices. 

While silver’s performance has disappointed investors for going on a decade, many forget it rose spectacularly between 2000 and 2010, climbing well over 900%, and easily outpacing gold which “only” gained 600% during the same time frame. In April 2011 spot silver hit $55.59 an ounce, more than triple its current value. 

Also, consider this: last year some 840 million ounces of silver were produced worldwide, compared to 108Moz of gold. Assigning $14 an ounce for silver and $1,400/oz for gold works out to a $13-billion-a-year industry versus $156 billion annually for gold - making the gold market 11 times larger than silver. 

Demand drivers

Underpinning silver’s fine showing this year and likely, into next, are a number of important uses, beyond what people normally think of when they imagine silver, as for example jewelry or investable silver coins/ bars. 

A record amount of silver was sought in 2018. According to the Silver Institute’s annual survey, total physical demand last year rose 4% to 1,033.5 million ounces - a three-year high. The need for silver was driven mostly by purchases of bars and coins, jewelry and silverware, particularly in India. 

Reuters reported high gold prices had many Indian buyers turning to lower-priced silver for their bling. The country consumed 16% more silver jewelry in 2018 (76.5 million ounces) and bought 160% more silver investment bars, lifting overall jewelry demand 4% to 212.5 million ounces, and global bar and coin investment 20% to 181.2Moz. 

Silver’s unique properties make it ideal for a number of industrial applications - almost as many as oil. The metal is strong, malleable and conducts heat and electricity better than any other material. Gold also has these properties but it is too expensive to use in circuit boards, solar panels, electric cars, etc.

Over 50% of silver demand comes from industrial uses like solar panels, electronics, the automotive industry and photographic applications. 

The solar power industry currently accounts for 13% of silver’s industrial demand.

Indeed more and more silver will be demanded for its use in solar photovoltaic cells, as countries move further towards adopting renewable energy sources. Around 20 grams of silver are required to build a solar panel. The Silver Institute predicts 100 gigawatts of new solar facilities will be constructed per year between 2018 and 2022, which would more than double the world’s 2017 capacity of 398GW. 

A recent study by the University of Kent found that rising demand for solar panels is driving up silver prices. 

Supply slippage

As demand for silver in its various forms powers higher, finding enough metal is becoming a challenge. Last year’s silver supply of 1.004.3 billion ounces failed to meet physical demand of 1.033 billion ounces, leaving a 29.2Moz deficit.

According to Americas Gold and Silver, a Toronto-based precious metals producer, between 2017 and 2018, silver production across the sector fell 15%, the volume of processed ore slid 14%, and there was a 13% increase in the cash costs per ounce of silver. It’s important to note here, that the average head grade at silver mines has fallen by over 50% since 2010 - cutting into miners’ profitability.

The solution is to find new high-grade production, but the problem - like for gold - is finding enough world-class, multi-million-ounce deposits to make up for the lower grades and lesser mine output. 

Silver production fell by 2% last year to 855.7Moz, the third consecutive drop after 13 years of uninterrupted supply growth. The 2019 World Silver Survey attributed the loss to falling production at lead and zinc mines; 75% of silver is mined as a by-product, mostly of gold, copper, lead and zinc. 

As for 2019, mine supply from the top three silver-producing countries, Peru, Chile and Mexico, all dropped in the first half of this year. Data collected from each country showed Peru’s H1 silver production was down 10%, Chile’s fell 7% and Mexico’s saw a 4% decrease from January to May. 

Four of the top five silver producers have shown considerable declines in mine supply, including Russia’s number one producer, Polymetal International, whose production during H1 2019 tumbled 14%. In October the world’s largest silver miner, Fresnillo Plc, admitted its annual silver and gold guidance would be at the lower end of an already reduced target, after reporting a fall in output during the third quarter, because of lower ore grades. Q3 silver production fell 14.5% and gold production slumped nearly 7%. 

Globally, silver output in 2019 is expected to decline to 913.5Moz.  

The 2018 narrative of shrinking silver supply due to falling production at lead and zinc mines, where silver is mined as a by-product, is just as relevant. As of November 2019, zinc and lead are both in terribly short supply in London Metal Exchange warehouses. At just 27,800 tonnes, zinc stocks are at their lowest in 20 years. Lead stocks are higher at 70,075 tonnes but have not rebuilt significantly from July’s decade low of 55,475t, CNBC reported

The International Lead and Zinc Study Group blames supply bottlenecks for keeping lead and zinc (and silver) in deficit this year. The group widened its 2019 expected zinc supply deficit to 178,000 tonnes, from its earlier 121,000 tonnes prediction. 

Conclusion

Recall that only 25% of silver production originates from primary silver mines. The rest is mined as a by-product of gold, copper, zinc and lead deposits. Silver exploration companies with pure-play silver projects are therefore rare, and typically trade at a premium to gold equities.  

Companies with polymetallic mines that produce silver as a by-product are also highly desirable as an investment, especially during the current period of falling silver mine production. 

Industrial demand for silver, particularly photovoltaics, is heading up, and should get another lift if and when the trade war with China is put to rest. Investment demand for silver also looks solid, with no end in sight to the low-interest-rate policy direction of central banks. 

Add higher demand to shrinking supply, lower grades, and less silver by-product credits from falling lead and zinc mine production, we see a floor forming under silver prices, evidenced by a year-to-date gain of 8.6%.

Gold prices are holding up very well in the face of a Phase One trade deal with China, a continued strong dollar and higher interest rates in the US then elsewhere. At AOTH we do not believe the gold price is going to fall, quite the opposite actually.

During the last 20 years the gold/ silver ratio has been 60:1. Which makes the current ratio of 86 very high historically, 47:1 over the 20th century, and nearly 50% above the 20-year average of the 21st.

"Come on, Silver! Let's go, big fellow! Hi-yoSilverAway!" Lone Ranger

Hi ho silver away. Indeed.

By Richard (Rick) Mills

www.aheadoftheherd.com

rick@aheadoftheherd.com

If you're interested in learning more about the junior resource and bio-med sectors please come and visit us at www.aheadoftheherd.com
Site membership is free. No credit card or personal information is asked for.

Richard is host of Aheadoftheherd.com and invests in the junior resource sector.

His articles have been published on over 400 websites, including: Wall Street Journal, Market Oracle, USAToday, National Post, Stockhouse, Lewrockwell, Pinnacledigest, Uranium Miner, Beforeitsnews, SeekingAlpha, MontrealGazette, Casey Research, 24hgold, Vancouver Sun, CBSnews, SilverBearCafe, Infomine, Huffington Post, Mineweb, 321Gold, Kitco, Gold-Eagle, The Gold/Energy Reports, Calgary Herald, Resource Investor, Mining.com, Forbes, FNArena, Uraniumseek, Financial Sense, Goldseek, Dallasnews, Vantagewire, Resourceclips and the Association of Mining Analysts.

Copyright © 2019 Richard (Rick) Mills - All Rights Reserved

Legal Notice / Disclaimer: This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified; Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules