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Metals Focus: 'investment inflows into silver are likely to continue,' $20/oz prices expected

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(Kitco News) - Metals Focus looks for silver prices to climb above $20 an ounce later this year on continuing investment demand, with year-to-date inflows into exchange-traded products already hitting a record high this year.

The metal has staged what the consultancy calls a “remarkable recovery,” regaining $18 an ounce several times this month after falling to a multi-year low of $11.64 in March.

“Although the rally has since run out of steam, silver has been holding up above $17 recently, a level still notably higher than that seen over much of 2018-19,” Metals Focus said.

Analysts noted that another COVID-19 outbreak is occurring in Beijing, which can disrupt markets. Nevertheless, analysts said they have a “fairly optimistic outlook” that the world will be able to handle further waves of the infection and a stimulus-driven economic recovery will occur.

“Against this backdrop, we believe investment inflows into silver are likely to continue,” Metals Focus said. “Key to this will be exceptionally low policy rates and unprecedented liquidity injections by central banks, which will ensure a minimal opportunity cost of carrying gold and silver. A slowing global economy should also ultimately encourage a further rotation from stocks and bonds into defensive assets.

“Once gold eventually breaks out to challenge its all-time high, silver should reassert its ability to outperform gold, with the white metal expected to surpass the $20 mark in late-2020 (along with a fall in the gold-silver ratio to the low 90s).”

As of 10:10 a.m. EDT, spot silver was up 9 cents for the day to $17.50 an ounce. The gold-silver ratio, which measures how many ounces of silver it takes to buy an ounce of gold, was around 98.5.

Retail investment has “burst into life” as silver – like gold and other markets – recovered after an initial sell-off during a rush into cash back in March, Metals Focus said. At the time, equities were in a free fall in response to worries about the economic fallout from the COVID-19 pandemic.

“Silver’s strong recent comeback has been assisted by strong gold prices,” Metals Focus said. “As the gold-silver ratio hit a series of all-time highs during March, this made silver appear increasingly undervalued, especially for many retail investors who often see falling prices as an opportunity to buy the metal. Despite a sharp fall since April, at around 100 at the time of writing, the ratio remains elevated by historical standards.”

In particular, demand for silver exchange-traded products has been strong, Metals Focus said. As of the consultancy’s report, analysts said global ETP holdings were at a record high of 896.4 million ounces. They had risen by 167.5 million for the year to date, already surpassing the highest-ever annual inflow of 149 million ounces from 2009.

“ETPs’ low cost and easy access also raised its investment appeal, especially at a time when retail sales of bars and coins in the U.S. were affected by supply-chain disruptions,” Metals Focus said. “Bar and coin sales did burst into life in response to the March price correction and a deteriorating economic outlook. This saw dealer stocks for several investment products quickly become depleted, resulting in extended delivery lead times and far higher premiums.”

Further, speculative interest among futures traders picked up, Metals Focus said.

Still, analysts continued, “not all is rosy for silver,” with industrial fabrication demand hurt by the COVID-19 pandemic. At least there are indications of a pick-up in this consumption, however.

“After a sharp contraction in March-April, silver industrial demand has shown signs of improvements from May onwards, after many key economies gradually lifted lockdown measures,” Metals Focus said. “However, poor consumer confidence and a sharp rise in unemployment have continued to weigh on demand in many end-user applications such as automobiles and consumer electronics. In the photovoltaic sector, as the pandemic spread to more emerging countries leading to worsening economic conditions, this may put further pressure on the industry, which had already faced project delays. Jewelry and silverware have also suffered losses, as a result of lower visitors to retail stores and the appetite for discretionary spending taking a hit.”

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.