Strong Institutional Investment Pushes Silver Prices Higher

March 16, 2017

The silver price has started 2017 on a positive tone, rising by roughly 9 percent since the beginning of the year.

The strength of silver prices is largely due to improving sentiment among institutional investors. Changing expectations towards the outlook for U.S. interest rates and the proliferation of negative policy rates across other key reserve currencies has rekindled institutional investor interest in precious metals. Meanwhile, a marked improvement in silver industrial offtake, led by photovoltaics, which achieved a record high last year, is also helping.  All these factors in turn have fueled investment inflows into silver futures, options, exchange traded products (ETPs) and over-the-counter products.

Additionally, although expectations about a US Fed rate hike this month saw precious metals face some selling pressure earlier this year, the rate rise announced yesterday and accompanying dovish Fed comments have been met by healthy silver price activity.

Silver Investment Demand

 

 

 

 

 

 

 

 

 

 

 

Million Ounces

           
 

2011

2012

2013

2014

2015

2016E

Physical Investment

271.0

239.3

297.4

284.4

309.0

215.9

ETPs

-26.1

52.1

14.8

0.1

-15.9

45.9

             

 Source: Metals Focus

This year’s silver price rise is coming on the heels of an impressive 2016, with the price experiencing a 9 percent increase in its annual average, its first yearly rise in five years.

Turning to physical investment, sales of silver bars and coins in 2016 fell from 2015’s record high, due to a downturn in U.S. and Indian demand, the world’s two largest markets, according to Metals Focus, the precious metals consultancy based in London.  In part, this reflected some market saturation after several years of very strong demand. The price recovery also meant that 2016 saw no repeat of the surge in bargain hunting seen in 2015.

“We expect that the factors that buoyed institutional silver investment over much of 2016, and have carried over into the early months of 2017, will remain relevant for the remainder of this year,” stated Michael DiRienzo, Executive Director of the Silver Institute.

The Fourth Coinage Act of 1873 embraced the gold standard and demonetized silver, known as the “Crime of 73”