What’s Going On With Silver? [iShares Silver Trust (ETF), SPDR Gold Trust (ETF), ProShares UltraShort Silver (ETF), ETFS Silver Trust]

silver barsJan Skoyles: According to many analysts surveyed at the beginning of the year 2014 was not supposed to be a good one for silver. In fact in January we reported that many silver forecasts saw the silver price averaging around $21 per ounce. We are now in a mind-set where any activity above $20 per ounce is greeted with positive chatter about a recovery in the price.

Is this what we have to look forward to? Pop-ups above $20? We take a look at what’s been going on this year and a couple of the issues affecting the price of silver.

2014’s silver vs 2013’s silver

2014, isn’t looking quite as bad as last year, when the price of silver fell by nearly 40%, compared to the price of gold which only fell by around 3%. Last year it seemed silver was on a winning streak and close to touching new highs. In March it rose to $32/oz, however it was unable to maintain this momentum as both gold and silver were taken out in the April.

At the time of writing silver investors have had a particularly painful March, with a rocky ride in the two months before. Quarterly and year-to-date gains for the white precious metal are just 2.5%, low compared to earlier 16% gains prior to quarter-end. In the final week of March silver-futures experienced their longest slump for over 13 years, in the final 6 days of the quarter the metals returned 5.4% of gains.

By mid-March precious metals looked like they were going to show the bears a thing or two, but only half-heatedly. Gold was up by just 12%, but this wasn’t as disappointing as silver’s mere 7% rise. Since then both have fallen below key levels and silver continues to underperform both its yellow counterpart and the more industrial precious metals.

In the last few days it just hasn’t been able to make up its mine, pushed over $21 after the weak non-farm payroll data last week, it is now back below $20.

Industrial silver versus monetary silver

Of course the metal is the more industrial of the two monetary precious metals, it is estimated that 75% of silver mined is used in industry.

Given the fall in the gold price is being attributed to an improving global economy one would think that silver would be enjoying the fruits of a recovering economy.

Whilst silver is an industrial metal, it is its role as a monetary metal and investment safe-haven that has driven the price in recent years. Whilst it hangs on gold’s coat-tails (it climbs when gold climbs and vice-versa) it tends to rise faster than gold and fall faster as well. Industrial demand may climb with some form of an economic recovery but it its performance is still highly connected to gold.

Many gold and silver bugs will mention the gold-silver ratio and use this as a reason as to why silver is so under-priced at the moment. 15:1 is the oft most cited ratio (not seen for over three decades) but at the moment it is around 64:1. In recent years it has remained between 30 and 70. The ratio may come down somewhat as silver’s industrial usage picks up.

Whilst silver’s fall exceeded that of gold, it was physical silver demand which was notably impressive last year. Not only were record coin purchases reported but also demand for silver bars was notable. Mineweb recently reported on the growing number of silver vaults in Singapore, in July Malca Amit’s 200-tonne silver vault was reported to be full. Just last month Silver Bullion Pte, a Singapore gold and silver retailer opened a 600-tonne vault.

Interestingly one area where silver has not followed a gold trend is in ETFs. For the third year in a row, assets in silver backed exchange-traded-products rose. This year they have climbed by 2%, whilst gold ETF outflows continue.

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