Silver price taking a beating, down nearly 4% on pandemic fears
(Kitco News) - The silver market can ’t catch a break. Momentum appeared to be shifting last week as prices outperformed gold; however that sentiment has evaporated as prices saw significant selling pressure Tuesday.
According to some market analysts, the disappointment in silver actually started Monday as the price significantly underperformed gold prices, which rallied to a new seven-year high. Since then it has gone from bad to worse. March silver futures last traded at $18.14 an ounce, down 3.90% on the day.
Some analyst have said that silver is struggling to find momentum as investors fear that the spreading coronavirus will eventually become a pandemic, which will drag global growth down this year.
Ryan McKay, commodity strategist at TD Securities, said although silver ’s selloff is surprising in magnitude, it does make sense as the precious metal is getting hit on two fronts.
“Silver will continue to underperform gold because gold is the better beta to monetary policy and it is a better safe-have hedge,” he said. “There is significant risk-off sentiment in the marketplace including for industrial metals and that is also weighing down silver.”
Although silver is seen as a monetary metal, half of its physical demand comes from the industrial sector. One industry that investors and analysts are watching closely is solar. Silver is a critical metal used in photovoltaic.
Analysts at Heraeus, said that the coronavirus in China significantly impacted solar panel production.
“China is the largest photovoltaic (PV) silver market in the world, accounting for over a third of annual installations and the majority of manufacturing globally,” the analysts said in a report Tuesday. “Many solar module manufacturing facilities across China were closed for at least two weeks as the authorities attempted to deal with the coronavirus outbreak. While many factories have since reopened, the China Photovoltaic Industry Association (CPIA) expects output to be curtailed until mid-year at the earliest, with recovery from Q3.”
McKay said that just as markets were coming to grip with weak demand in China, investors were hit with news that the virus is spreading through South Korea, another important industrial hub for the silver market.
Looking ahead, Heraeus said that it expects silver will continue to be trapped in gold ’s shadow.
“It marginally outperformed gold last week, but unlike gold, silver did not make a new price high for the year. The occasional surge of outperformance does not change the expectation that, overall, silver will lag gold this year,” the analysts said.
Traders are watching to see if silver can hold initial support at $18.00. McKay said that if gold prices are unable to hold support at $1,650 then silver prices will eventually fall to long-term support at $17.50 an ounce.