The precious metal rose sharply in the early part of 2019, climbing to a high of $16.22 an ounce on Feb. 20, its highest level since June. Since then, however, gold has come under pressure, pulling down silver with it. As of 10:31 a.m. EST, spot silver was trading at $15.04 an ounce, down 6 cents for the day.
Prior to the recent pullback, improved sentiment toward silver was reflected in Comex positioning, Metals Focus said in a report released late Tuesday. Money managers had swung to a net-long, or bullish, position after being net short, or bearish, for much of 2018. Silver holdings by exchange-traded products were described as “stagnant” since early 2019 but nevertheless remain only 9% below the peak, the consultancy.
“A positive picture is also revealed when it comes to retail investment in the U.S., the world’s biggest market for silver bars and coins; after three years of heavy losses, sales of U.S. Eagle silver bullion coins for January-February 2019 jumped by 48% y/y [year-on-year], albeit from a low base,” Metals Focus said.
Still, investors are not moving into silver heavily yet, particularly since they do not anticipate a secular downturn in the stock market, Metals Focus said. Further, worries about an economic slowdown in emerging-market economies such as China are also a hindrance to silver investment.
Nevertheless, despite some short-term headwinds, analysts said they anticipate that late 2019 will be a turning point for silver investment and hence prices.
“Renewed interest from professional investors will be the main driver of this rally, which may well extend beyond 2019,” Metals Focus said. “An increasingly dovish U.S. interest-rate policy, together with the eventual start of rate increases in Europe, will deliver a weaker dollar. In addition, a slowdown in the U.S. economy will feed through into a weaker performance by equities, which is likely to encourage some rotation (albeit limited) in favor of precious metals.”
Metals Focus said it also looks for the structural supply/demand surplus to narrow and thereby support prices. Gains in both investment and industrial demand should offset further growth in mine supply, the consultancy said.
A narrowing surplus would be a contrast from 2016-18, when above-ground silver bullion stocks rose by 165 million ounces, discouraging institutional investment and resulting in a silver underperformance against gold, Metals Focus said.
“Going forward, given silver’s far smaller market size (relative to gold), we expect silver to gradually outperform the yellow metal, resulting in a fall in the gold/silver ratio to the low 70s in late 2019,” Metals Focus said.
The ratio measures how many ounces of silver it takes to buy an ounce of gold. As of mid-morning Wednesday, this ratio was around 85.4.
The iShares Silver Trust (SLV) was trading at $14.08 per share on Thursday afternoon, down $0.07 (-0.49%). Year-to-date, SLV has declined -11.94%, versus a 3.24% rise in the benchmark S&P 500 index during the same period.
This article is brought to you courtesy of Kitco.