(Kitco News) - Gold and silver continue to struggle after Tuesday’s dramatic selloff, which saw prices decline at their fastest pace in four and five years, respectively. However, according to one market analyst, despite the short-term volatility, the conditions that created the overheated market remain in place.
In an interview with Kitco News, Robert Minter, Director of ETF Investment Strategy at abrdn, said that while Tuesday’s selloff was dramatic, it helped alleviate overbought conditions in gold and silver.
“If you liked gold and silver last week when prices were unsustainable, you have to love it now that it is in a much healthier market,” he said.
At the same time, Minter said that precious metals investors should get comfortable with higher volatility—especially in silver, which he expects will continue to experience robust supply deficits.
Minter noted that the silver market has seen significant supply deficits for the last four years due to rising industrial demand, but it has taken some time to work through above-ground stockpiles. The market has only just reached a point where there is not enough physical metal to meet immediate demand.
“Silver has seen significant deficits for years, but nobody seemed to care. But we can see that prices were just coiling into the start of this year,” said Minter. “Because of market conditions, we should not be surprised to have seen this rapid revaluation in silver. We should also not be surprised to see some investors take profits at these levels.”
Silver’s volatility comes as the market has experienced extreme stress this year due to the global trade war and U.S. tariff threats. At the start of the year, massive amounts of silver flooded into the U.S. as market players and bullion dealers built stockpiles of the precious metal to avoid potential tariffs.
That stockpile took its toll on physical markets in London, and unprecedented investment demand in recent weeks has completely depleted available inventories—driving lease rates to record highs and pushing up the premium between spot and futures prices.
Minter said he doesn’t expect market volatility to subside anytime soon.
“Right now, there is just not enough metal to satisfy all the different markets. But I don’t know what changes that. I don’t expect we will see enough recycled material to meet demand,” he said.
Minter noted that since 2016, silver mine supply has declined by 8.8%, even as demand has increased.
“The question is, how are we going to get a material increase in the silver supply? It’s going to take higher prices, but it's also more than that,” he said. “I don’t think there is a silver miner out there that would not want to increase their production, but they are constrained. It takes at least 10 years to bring a new mine into production.”
“All this to say, the silver market cannot be fundamentally fixed in the short term.”
