5 reasons why the price of silver is not higher : StoneX

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(Kitco News) In response to the confusion surrounding silver prices, StoneX hosted a silver webinar, describing the precious metal as a Cinderella metal and giving five reasons why its price isn’t higher .

According to some estimates, silver prices should have seen a larger rise this year due to the buoyant global demand for coins and the recovery of physical demand in India. So why isn’t it? StoneX listed five reasons.

1. Anemic Gold Price Performance
2. Professional disinterest – ETP and CFTC holdings are down
3. LBMA Money Vaults Provide Sufficient Money Supply
4. The physical market is much smaller than the professional market
5. Spot Price Doesn’t React Locally, But Local Premiums Do

For example, StoneX said holdings of exchange-traded products (ETPs) have shrunk by more than 4,000 tons year-to-date to just under 24,000 tons. COMEX stocks fell to just under 9,700 tons from 11,064, said Rhona O’Connell, head of market analysis for EMEA and Asia at StoneX.

And if you add in a reduction in LBMA holdings, which are 9,000 tonnes this year, that comes down to 414,500 tonnes, equivalent to 22 weeks of global industrial demand, O’Connell explained.

“In principle, it looks like the market is well fueled by these cuts, and that would be one of the reasons why the spot price hasn’t moved from reports of very strong physical demand,” he said. she explains.

Positioning in the silver market also played an important role. “COMEX money saw short cover. In early September, the short position within the managed money component was 9,420 tons, and this is the largest since July 2019. It contracted during the month to 6,814,” she noted. “It’s still reasonably substantial as the average over the last 12 months was 5,204. There’s more short cover to be had if we’re looking to average back.”

O’Connell also added that a large net short does not necessarily lead to a strong short cover rally.

Next year, StoneX expects gold and silver prices significantly higher than current trading levels, but it does not see the gold-silver ratio return to its long-standing average of 60. The current ratio, which implies how many ounces of silver are needed to buy one ounce of gold, is at 88. At the time of writing, the December Comex silver price was 18 $.86, down 0.41% on the day.

“It’s nowhere near 60, and it’s very difficult to predict the circumstances under which we’ll see a reversion to the mean,” she said.

If silver is Cinderella’s metal, then evil stepmother and younger sisters are the global economy and the US dollar, O’Connell joked. The question is, how often is there money left at midnight and how often is there a happy ending?

O’Connell pointed out that silver can be very volatile and investors should be prepared for a lot of excitement that could end in a dip towards the metal’s starting point or even lower.

In 2022, the silver supply will return to excess due to redemptions in ETFs. “We are currently looking at a surplus of around 2,200 tonnes this year, just under three weeks’ worth of demand,” O’Connell said.

In 2021, Mexico, China and Peru were the top three silver producers by country, accounting for 51% of the world’s silver mining supply.

Additionally, total cash costs for primary silver mines were $3.88, while all-in sustaining costs were $10.88. By comparison, the average year-to-date silver price is $21.86. “Under normal circumstances, the silver supply is continuous and relentless,” O’Connell described.

India is one of the reasons many expected silver prices to be much higher. Since May, there have been strong flows in the country. “This revival was the release of pent-up demand after a terrible 2020 and 2021. A prominent importer has signaled that Indian investors are looking for silver in its role as poor man’s gold…expecting that silver price outperforms,” ​​O’Connell said. .

In terms of future predictions, StoneX sees silver retaining its close relationship with gold and copper.

Silver is mainly driven by gold, which is driven by the US dollar. “We will likely see the dollar rise next year on concerns about emerging market debt and rising rates,” O’Connell noted. “If the dollar stays too strong for too long with rising rates, we could be heading for precipices of financial stability in emerging markets. Central banks are probably aware of that.”


Disclaimer: The opinions expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. This is not a solicitation to trade commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article accept no responsibility for loss and/or damage resulting from the use of this publication.

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