Silver outshines gold with robust H1 performance

TORONTO (miningweekly.com) – While silver is sometimes called “poor man’s gold”, it has nevertheless outshone the yellow metal’s performance in recent months.

Silver reached $20.47/oz on the July 11 London Bullion Market Association fix, a level not seen in almost two years. This was compared with a year-start fix of $14/oz on January 4, an increase of just over 46.2%.

The London afternoon gold fix stood at $1 082.25/oz on January 4 and rose to $1 357.10/oz on July 11, an increase of almost 25.4%.

“Silver has had a phenomenal year so far,” Silver Institute executive director Michael DiRienzo told Mining Weekly Online.

“Many retail investors are interested in gaining exposure to silver for portfolio diversification and because of the metal’s strong fundamentals,” he added. “The people who buy into silver also tend to hold it through the highs and the lows.”

Silver had slowly retrenched since July 11, fixing at $20.14/oz on July 15.

BREXIT BOOST
As a financial asset with safe-haven buying status, silver’s trajectory often mirrors that of gold and, like the yellow metal, it benefited from the macroeconomic and political uncertainties marking the first half of the year.

However, it was slightly slower out of the starting gates compared with gold, gathering momentum in March compared with the yellow metal’s run that began in February.

A recent shot in the arm for both metals came after Britain’s referendum decision to leave the EU on June 23.

Subsequent macroeconomic worries also offered price support, including concerns about southern Europe’s economic malaise, specifically the Italian economy and perennial problems surrounding Greece’s debt levels.

The US Federal Bank also left interest rates unchanged in June, viewed by many investors as another buy signal.

The Silver Institute tracked an increase in exchange-traded products across the first half, rising by 44.3-million ounces to reach a record high of 662.2-million ounces. DiRienzo recalled the last rally where heavy exchange-traded fund buying coincided with robust physical demand from 2006 into 2008.

The institute also noted investors had increased long positions in Comex silver futures and options, with a record high of 80 522 contracts, effective July 5.

INVESTMENT APPETITE
Coin sales increased in the first quarter by 29%, with North America proving the most robust market, although sales also grew by double digits in all other major regions, such as Europe, Japan and Asia.

DiRienzo added that the demand pressure experienced by the major mints in 2015 for coins had not been replicated year-to-date.

Last year witnessed a surge in buying by investors seeking a physical bargain on the low prices. The US mint even halted sales of American Eagles (1 Eagle = 1 oz) for three weeks in July 2015 because of depleted inventory.

“So the current situation tells me something important – that those involved in manufacturing and marketing have stepped up their game to supply the necessary silver planchets (the blanks), in order to fulfil demand,” DiRienzo said.

Demand for silver bars had weakened somewhat during the first half owing to price-sensitivity of the format for investors.

“However, we’re not saying bar sales are stagnant; we’re just saying they’re not as robust at the six-month mark in 2016 as they were in 2015,” DiRienzo stressed.

Bar and coin uptake for 2015 stood at 292.3-million oz, an increase of 24% on 2014.

Silver’s recent price performance contrasts with last year’s, which averaged $15.68/oz across 2015, according to the World Silver Survey 2016 (WSS).

The price slid in the second half of 2015 as the greenback continued to strengthen and the US’s economic performance appeared to brighten further. The US Fed introduced a quarter-point interest rate rise in December 16.

Silver had already touched its 2015 low two days beforehand at $13.71/oz and ended the year at $13.82/oz.

LET’S GET PHYSICAL
The recent price rise would act as a boon for those with silver operations or who had mines with a notable silver component. It would also assist companies seeking to advance silver projects.

“As the price increases it obviously makes it more attractive to expand exploration budgets,” DiRienzo said.

“But I’m not sure we’re at that point yet,” he added. “Many of these companies experienced a lot of belt-tightening, which was something seen not just in the silver space but across the whole metals complex, of course.”

DiRienzo also stressed that only around 30% of silver came from primary silver mines, with the rest of mine supply a by-product tied with lead, gold, zinc or other metals activity.

“Even though we’re more than halfway through the year, it’s still very early in terms of putting together a robust picture of silver in 2016,” he cautioned.

Physical output was in deficit across 2015, with the WSS recording 886.7-million ounces against demand of just over 1.17-billion ounces.

Silver for jewellery, sometimes treated as a financial asset, achieved its third consecutive increase in uptake in 2015 to stand at 226.5-million ounces, spurred by growing demand from India, Thailand and North America. However, Chinese demand contracted.

Silverware demand rose slightly to 62.9-million ounces, up from 60.7-million ounces.

Industrial fabrication accounted for the lion’s share of physical demand for 2015 at 588.7-million ounces, although this was down from 611.2-million ounces from 2014. One of the most pronounced falls was for silver used in electrical and electronics products, declining from 263.1-million ounces in 2014 to 246.7-million ounces in 2015.

While the uptake was not as large as other categories, there were marked increases for silver used in the photovoltaic solar sector and for ethylene oxide (EO), a vital component for plastics, including polyester.

Silver entering EO plants rose from five-million ounces to 10.2-million ounces, an increase of almost 104%. “The number of overall ounces isn’t gigantic, but it’s certainly a growth area for silver,” DiRienzo noted.

Photovoltaic silver consumption stood at 77.6-million ounces for 2015, up from 63.2-million ounces, an increase of almost 22.8%. That growth was expected to climb as global installed solar capacity continued to grow.   

“The world is beginning to loosen its ties with fossil fuel and look at alternatives, and solar is going to be a big benefactor,” DiRienzo said.