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Silver's price weakness is exaggerated - Metals Focus

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(Kitco News) - The silver market faces some short-term headwinds as focus on the potential for tighter monetary policy; however, the precious metal's drop to a three-month low below $25 an ounce has exaggerated the market's weakness, according to one research firm.

In a report published Wednesday, analysts at Metal Focus reiterated their positive outlook for silver, looking for higher prices by the end of the year. In the report, the analysts said they see the recent selling pressure as more strategic rather than a fundamental shift in investor interest.

"It is worth noting that much of the recent selling in silver has come from tactical players, as evidenced by a sharp reduction in managed money longs on COMEX. Silver ETPs also witnessed outflows, albeit modestly, leaving holdings just 5% below February's all-time high. With trend following selling largely done and the hawkish tilt factored in, this should leave scope for fresh investment inflows later this year, leading to a healthy rebound in silver prices in the coming months," the analysts said.

The analysts also noted that silver investors don't have to fear rising interest rates anytime soon.

"Across many economies, labor markets remain a long way from their pre-pandemic state. Against this backdrop, the continuation of ultra-loose monetary and fiscal policies in the U.S. and elsewhere seem inevitable," the analysts said.

While paper demand for silver has dominated the marketplace, The U.K. research firm noted that investors are taking advantage of discounts in the physical metal.

"Our bullion coin survey suggests that silver bullion coin sales jumped by 48% and 22% y/y in North America and Europe respectively in H1.21. A further sign of retail strength has emerged lately, with the launch of the newly designed silver Eagle selling out (although the initial quantity offered by the U.S. Mint was relatively low)," the analysts said.

Looking past investment demand, Metals Focus said that they still expect to see healthy industrial demand even as the spread of the COVID-19 Delta variant weighs on economic growth expectations.

"Silver's industrial offtake in 2021 is still on track to achieve a new annual high for our series back to 2010. Much of this year's growth is due to photovoltaic (P.V.) demand, as new capacity additions year-to-date have exceeded previous expectations. Going forward, growing commitments to carbon neutrality across several key economies, coupled with a solid pipeline for P.V. projects, should help underpin silver demand," the analysts said.

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