Click here to read the previous silver price update.
Vulnerable to widespread uncertainty in broader markets, the price of silver fell to a two-year low of US$20.23 per ounce at the end of the second quarter.
After starting the year at US$23.04, the versatile metal hit a first-half high of US$26.46 on March 8. Silver faced some consolidation after this rise, but remained high until April 18, when it hit a second-quarter high of US$25.91.
The metal then faced a dramatic decline until May 18, when it hit a low of US$20.59. Silver remained in a range below US$22 for the remainder of the quarter.
Supply chain challenges in key demand segments, along with rising interest rates and record inflation, have made silver more volatile than gold, which has been able to reap some benefits in as a safe haven and hedge against inflation.
As Maria Smirnova of Sprott and Sprott Asset Management explains in a recent report, silver’s performance is not particularly surprising. “Since silver’s outperformance in 2020, the global macroeconomic environment has changed dramatically and has become increasingly volatile,” she explains in the paper.
“Markets continue to grapple with the impacts of the COVID pandemic, geopolitical concerns have increased significantly, and the recent equity selloff has yet to find a stopping point.”
With market turbulence eroding investor confidence, the price of silver fell 17% in the second quarter.
Year-to-date silver price performance.
Chart via TradingEconomics.
Looking ahead, silver should experience more headwinds in the third quarter, according to Jeffrey Christian.
“We expect that we will see this period of consolidation continue for the rest of this year, and possibly into 2023,” said Christian, managing partner of CPM Group, during his presentation in June. at the Prospectors and Developers Association. Canadian conference.
He explained that the price of silver will be largely contained by its correlation with competing assets, especially currencies, as well as stock and bond markets. “Because it strongly affects investment demand, which is probably the main factor driving silver prices up or down,” he said.
Silver Price Update: Investment Demand Remains Key Driver
In 2021, physical silver demand grew 36%, contributing to 96.8 million ounces of net investment demand for the year, a 50% increase from 2020 and the highest level since 2016.
“Investment demand in 2021 has increased due to negative real rates, heightened inflation concerns, ongoing political tensions and expectations of strong demand from the solar panel and electric vehicle industries,” noted Rohit Savant, vice president of research at CPM Group, at a press conference in May. online seminar.
For 2022, investment demand is expected to contract to 76.2 million ounces as electric vehicle production is hampered by the shortage of semiconductors plaguing the automotive sector.
“While this is a pretty steep drop, when you compare it to what it was historically, it will be higher than the periods between 2017 and 2020, as well as the period between 1988 and 2008,” said added Savant.
For CPM Group, silver investment demand will depend on the macro economy, particularly real rates, which will be the “biggest headwind to silver investment demand” for the remainder of 2022.
“We expect real rates to remain very low due to high inflation, at least over the next few quarters,” Savant said. “However, they will be higher than they have been for the past two years, which we believe will act as a headwind on silver prices, as well as silver demand this year. .”
On the other hand, there is also potential for an upside in investment demand. “Investment demand in 2022…will be supported by the metal’s role as a portfolio diversifier,” Savant explained.
“Russia’s invasion of Ukraine was a good reminder of the need to diversify portfolios in expectation of strong demand from the green energy sector,” he said. “We also believe this is something that would continue to support silver investments this year.”
Silver Price Update: Solar Panel Sector May Offer Price Support
Faced with falling investment demand, experts believe that other segments of the silver market are likely to keep prices from falling too far below US$20.
In 2021, the solar panel sector represented the highest demand for silver with 104 million ounces. This rise is due to an increase in the production of photovoltaic (PV) cells that collect and convert sunlight into energy.
The importance of silver in the green energy sector is key to Sprott’s bullish outlook for the white metal.
“Silver inputs for solar panel production are a prime example, growing 13% as a category in 2021 and contributing to a new record high for global silver demand in 2021,” Smirnova wrote. “This rebound, even in the face of the supply chain constraints that have plagued global manufacturing since the onset of COVID, reflects the substantial investment in green energy that is underway.”
The war in Ukraine may also be a catalyst for increased photovoltaic production, as energy security becomes increasingly important ahead of the climate transition to fall and winter in Europe and North America.
“The outlook for new photovoltaic capacity is therefore extremely positive, which will in turn translate into robust silver demand,” Metals Focus noted in a weekly report from late June.
While the metals consultancy expects growth from the photovoltaic industry, the precious metals report mentions headwinds that silver demand may be facing from the solar sector.
“The somewhat more cautious approach we have taken reflects long-standing concerns among solar panel manufacturers about the impact on margins of silver price volatility. As a result, they continued to reduce costs through various savings and substitution programs, particularly by optimizing the plating process to reduce the amount of silver usage,” according to Metals Focus.
The economy and rising prices will not deter demand for silver from the photovoltaic sector this year, and totals are expected to rise by 10 million ounces to a total of 114 million ounces.
Much of that money will likely go to the United States, where a group of solar energy developers have agreed to jointly spend US$6 billion to develop the domestic industry. The mega cash injection is designed to bolster America’s green energy capacity, while weaning the country from its dependence on Chinese panels.
In the announcement, Andrés Gluski, president and CEO of AES (NYSE:AES) – a member of the group – said the consortium was “committed to supporting America’s clean energy transition”.
Silver Price Update: Gold-Silver Ratio Indicates Silver Value
In explaining why Sprott remains bullish on silver, Smirnova compared its price performance to gold.
“From a price perspective, silver is historically undervalued relative to gold right now and offers an attractive investment opportunity,” she noted.
This is particularly evident in the gold-silver ratio, which has been rising steadily since late March, hitting a second-quarter high of 87.55 on May 13 and falling slightly to 86.15 at the end of June. This margin has increased since the start of July, hitting a two-year high of 92.5 as prices fell to a 24-month low of US$18.20.
“The gold/silver ratio which had declined in the first half of 2021 has now recovered to the upper end of its historic range,” Savant told webinar attendees. “While the increase in the ratio does not guarantee high silver prices, silver’s relative underperformance against gold enhances its appeal to some investors.”
Gold and silver contracted to year-to-date lows in the first two weeks of July. However, both metals should see their value rise as economic conditions deteriorate.
“As we look at various economic trends, including capacity utilization, housing market trends, consumer trends, economic growth in various countries, we believe that a recession is likely to persist through 2024,” Christian said.
“But we recognize that there are heightened volatilities and uncertainties around the world, with Russia’s invasion of Ukraine being one of the key factors there, as well as the effects of rising interest rates. ‘interest. And we may see a recession sooner rather than later. »
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Securities Disclosure: I, Georgia Williams, have no direct investment interests in any of the companies mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or completeness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the views of Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
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