(Kitco News) – A global slowdown caused by the global COVID-19 pandemic will weigh on silver industrial demand this year, but according to the latest research for the Silver Institute, investment demand will drive prices higher in 2020.
“The silver market is small so it doesn’t take a lot of money to really push prices higher,” said Phillip Newman, director of Metals Focus, the research firm behind the Silver Institute’s World Silver Survey 2020.
In a telephone interview with Kitco News, Newman said that investor demand for silver, led by a rally in gold, could push prices to $19 an ounce this year. The comments come as silver prices struggle to hold gains above $15 an ounce. May silver futures last traded at $14.96, up 0.6% on the day.
Metals Focus’ price target represents a more than 26% gain in silver from current prices. However, Newman warned that analysts still expect silver to underperform gold, which will remain the ultimate safe haven as coronavirus uncertainty continues to dominate the global economy and financial markets.
Looking at the gold/silver ratio, Newman said it should come down from last month’s record highs but still remain elevated around 90 points. The ratio traded around 114 points Wednesday, meaning that it take 114 ounces of silver to equal one ounce of gold.
“The rally starts with gold and then moves to silver as investors start to see value in the precious metal,” he said.
One of the key indicators that Newman is watching to gauge silver’s investment potential is speculative interest. Newman noted that the latest trade data from the Commodity Futures Trading Commission shows that net-bullish positioning in silver is at its lowest level in a year.
“There is significant room for speculative investment to come back into the market,” he said. “That is one of the most important investor indicators we are watching right now.”
Along with stronger gold, Newman said that lower volatility in silver prices will also help to attract investors back to the market.
Along with strong investor interest in silver-backed exchange-traded products, Newman said that analysts also expect to see higher demand for physical investment. Metals Focus expects demand for silver bullion and coins to rise 16% this year.
The optimistic silver price outlook comes as industrial demand is expected to fall this year. Overall the firm sees physical silver demand dropping 3%, totaling 963.4 million ounces. The firm also noted that this is the lowest demand level for the precious metal since 2009.
Helping to provide some balance to the marketplace is the fact that Metals Focus said that supply is also expected to drop by 4% this year. Global silver supply is expected to come in at 978.1 million ounces in 2020, also the lowest level since 2009, the firm said.
At the start of the month, Mexico declared mining a non-essential service, which forced many mines to shut down their operations. Mexico is the world’s biggest source of primary silver and represents about 23% of total global supply.
Crunching all the numbers, Metals Focus said that silver’s supply surplus is expected to total 14.7 million ounces, a drop of 53% compared to the stockpile created in 2019.
Although silver’s industrial demand is expected to be lackluster this year, Newman said that he is optimistic the sector will survive the impending global downturn.
For example, weak global growth and low oil prices are expected to weigh on solar power demand. Still, Newman said that renewable energy will still represent an important market for silver.
“Some countries are expected to postpone new capacity for solar energy, but the sector is solid enough to survive this drop,” he said.
Newman said that the electrification of the auto sector is also a growing area of demand for silver. A global depression will weaken car sales, but demand for silver will remain.
?“Every new car that comes out uses more than the older version,” he said.
Author: Neils Christensen