Silver still faces a small oversupply, improved investment sentiment helps push up prices

November 22, 2019

London (Nov 22)  SMM: recently, consulting firm Metals Focus released a mid-term silver market review report, even taking into account the recent mild correction in silver prices, investors' view of silver has improved a lot in the past few months.

As a result, silver rose to a three-year high of $19.65 in early September, while the gold / silver ratio fell to a one-year low. Silver prices are now easily above the trading range in the first half of 2019. For the full year, Metals Focus expects silver to average $16.20 in 2019, up 3 per cent from last year.

At the start of the year, several major producers predicted that silver supply was likely to return to growth after three years of decline. However, community protests and strikes across South America, the blockade of the Penasquito mine and the lower-than-expected grade of the Uchucchacua, Fresnillo and Saucito mines put pressure on total production.

Production is well balanced and is expected to fall 0.7 per cent to 849.3 million ounces in 2019. However, there is still uncertainty in the fourth quarter, and the direction of global supply will depend on whether interrupted operations restart and whether key mines meet grade targets.

Silver manufacturing will remain at an all-time high for the second year in a row.

Even so, a number of areas of electrical and electronic end-use are struggling against a backdrop of escalating trade frictions, which is broadly in line with the global economic downturn. However, their negative impact on silver demand has been mitigated by higher silver loads, especially in the vital automotive industry. In addition, silver consumption in the photovoltaic industry is growing as more countries press ahead with renewable energy projects in 2019.

Global demand for silver and silverware is expected to grow by 3 per cent and 4 per cent, respectively, in 2019. Demand growth in both areas this year has been almost entirely led by India. By contrast, jewellery consumption in the US, the world's second-largest single national market, remains relatively weak. Structural factors have led to a further decline in demand in China.

Physical investment is also expected to grow healthily in 2019, with sales of silver bars and coins expected to grow by 7 per cent to the highest level in three years. In the US, investment is expected to record its first annual increase in four years because of improved price expectations and rising price volatility, although investment levels remain historically low. In India, some of the recovery that began in 2017 has continued this year, although a sharp rise in rupee prices has led to a recent slowdown in sales, especially in rural areas.

Overall, the silver market is expected to have a small oversupply in 2019. Still, the metal should be easily absorbed by investors, as rising macroeconomic uncertainty and a new round of monetary easing by major central banks begin to reignite the attractiveness of safe haven assets in mid-2019. This should continue to be good for precious metals prices.


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