Silver prices down 10% and there is still room for more pain - analysts
(Kitco News) - As disappointed as investors feel about gold prices, it is nothing compared to the sentiment in silver as prices fall below $17 an ounce heading into the weekend.
Silver’s technical picture is relatively grim by any standards. Prices are trading at their lowest level since early December; at the same time, the gold-silver ratio has risen to 95 – meaning it now takes 95 ounces of silver to equal the value of one ounce of gold. The ratio is at its highest level in 30 years.
May silver prices last traded at $16.615 an ounce, down 10% from the previous week. On monthly terms, the metal is seeing its worst losses since 2011. By comparison, gold prices are down nearly 4% as prices have slid below $1,600 an ounce.
According to some analysts, this week’s sharp move lower could be the start of further losses for the precious metal.
Steven Dunn, head of ETFs at Aberdeen Standard Investments, in a telephone interview with Kitco News, said that he suspects that silver is getting hit as investors worry about the health of the global economy.
Almost half of physical demand for silver comes from the industrial sector. Dunn noted that weak global economic growth lowers demand for the precious metal.
Dunn added that economists still don’t know the full impact the spreading coronavirus virus could have on the global economy. “We might have to wait until June before we get a handle on the full impact of the virus,” he said. “That will continue to weigh on silver prices.”
Other market analysts have said that silver’s speculative positioning is also another risk in the marketplace that could lead to lower prices.
“Investment demand for silver, which reached a record in ETF holdings of 619 Moz in late February, looks susceptible from here and could put further downwards pressure on prices. COMEX speculative fund positioning is also close to record highs… and could be part of the wider wash out from here,” said Jonathan Butler, precious metals analyst at Mitsubishi Corp. “Silver appears to have suffered the double whammy of concerns over industrial demand as well as losing ground to other more established safe-haven assets like U.S. Treasuries, the Swiss Franc or the Japanese Yen.”
Commodity analysts at TD Securities also noted silver’s lackluster safe-haven appeal compared to gold. In a note Friday, the bank said that it had exited its long-silver position.
“Extremely skewed positioning in precious metals, with an extreme number of traders long, each of whom holds an outsized position size, suggests that the bullish narrative has reached widespread consensus,” the analysts said.
Looking at the metal’s technical picture, Kitco’s senior technical analyst Jim Wyckoff said that he is watching support at $16 an ounce.
“The fears of a global economic slowdown are prompting concerns about consumer and commercial demand for silver,” he said.