Click here to read the previous price of silver update.
Volatility has been a key driver in the silver market this year, with the precious metal losing more than 16% of its value in the third quarter.
The white metal, which remained above the US $ 25 per ounce range between January and the end of July, suffered a dramatic drop in August. It fell to US $ 23.88 at the end of the month, down 9.68% from the US $ 26.44 the metal started the quarter on July 2.
Price performance in the third quarter was affected by the seasonal summer slump, which was exacerbated by uncertainty surrounding supply chain challenges, new waves of COVID-19 and sporadic industrial demand.
Favorable winds resulting from possible interest rate hikes and concerns about the US Federal Reserve’s monetary tightening, which pushed silver prices up in the first half of the year, were unable to counter the decline. on the industrial side of double metal.
Silver price performance since the start of the year. Graphics via Kitco.
After peaking for the year in early June (US $ 27.92), silver prices continued to decline until values slipped to a low of US $ 21.52 (29 September).
As Gareth Soloway, chief market strategist at InTheMoneyStocks.com, explained in late July, the correlation of the white metal with gold as a risk-mitigating asset was not enough to shake the continuing reverberations. of the pandemic.
The strategist noted in the July interview that once the money saved in 2020 is spent, there could be a drop in industrial demand.
“I think (that’s) why you see silver underperforming gold and not rebounding in the same way that gold has rebounded recently,” he said. “I also think the Delta variant plays into that same factor as well; we don’t know if there will be a further downturn in the economy due to the Delta variant, which again would influence the industrial side of silver. . “
Gareth Soloway: Gold forms bullish pattern, factors holding silver
Listen to Soloway discuss the performance of the precious metals market above.
In terms of catalysts, the below-average silver streak could end with rising inflation.
“Now in all fairness, as inflation continues to kick in, which I think money will eventually pick up steam and soar,” said Soloway, who noted that he believed inflation would not come back to 2% despite what the Fed said. “But you just have to go through this little period of consolidation and little setbacks until then.”
Silver price update: inflation hasn’t changed prices yet
The effects of inflation on the price of silver and what the Fed would do next continued to be a theme throughout the quarter.
In mid-July, David H. Smith, senior analyst at the Morgan Report, spoke about the growing disconnect between what we see and what the Fed says.
“It seems like they’re really a lot less up to date with what’s really going on on Main Street,” he told the Investing News Network. “They claim inflation is a bit high right now, that it’s transient, and that a lot of things won’t be sorted out until the pipeline is full.”
In terms of indicators that inflation is much deeper and not transient, the analyst pointed out that the price of food is “skyrocketing”, increases in rents and property costs, and the service sector.
“The backlog and the shipping (and) all of that stuff is creating what I think is a perfect storm for inflation that’s going to be a lot higher than most people investing today have experienced.”
David H. Smith: Money Stuck Below $ 30, Expect Labor Day to ChangeYoutube
Watch Smith delve into the silver market above.
Smith also warned of potential stagflation, marked by inflation, economic stagnation and a decline in gross domestic product. The term gained prominence in the 1970s and 1980s when inflation soared to 14%, before falling back to 3.5% in the mid-1980s.
“We paid more for just about everything and at the end of that decade it caused one of the biggest deals in gold and silver in history,” Smith said. “And of course very high interest rates, so gold and silver can thrive in a high interest rate environment.”
In January 1980, the price of silver exceeded US $ 35, an increase of 260% from June 1979.
Smith sees some positivity in the mining space due to the inflationary tone. “I think we are in a more productive time for the people in metals and miners than we have been since 2000, when they had very robust returns.”
Silver price update: demand eclipses supply
The consolidation in industrial demand is expected to be short-lived as economies around the world return to a sense of normalcy in the months to come. The US $ 1 trillion earmarked for infrastructure spending could be a catalyst for the precious metal, which is used in solar panels and in the manufacture of electric vehicles.
According to Forbes, “the conductivity and corrosion resistance of silver make it necessary for conductors and electrodes; almost all electrical connections in an electric vehicle use silver, and in total the automotive industry in uses 55 million ounces per year. “
Another expected driver of demand is the rise of connectivity and electrical applications.
The Silver Institute’s September Silver Demand Report predicts that annual demand in this space will grow from 224 million ounces in 2020 to 246 million ounces in 2025, a 10% increase.
“Each of these connectivity applications will require a large number and variety of sensors, communication, tracking and surveillance devices; many of them will use silver in their semiconductors, electrical contacts and elsewhere, ”notes the report, which was compiled by Cru International. “The underlying infrastructure supporting this connectivity transition, such as the 5G network and the ‘internet of things’, will itself contribute to increased demand for money.”
This constant demand will increase supply disparities, which, as Smith explained, will increase as the grade of the deposits decreases and current mines reach the end of their life.
“(Copper and silver miners have to) get more ore and they make less money out of it,” he said. “There haven’t been any real big discoveries in recent years, and this will move forward as we see the crisis continue (in) the electric vehicle market.”
The quality and life of copper mines is important to the silver market, as approximately 70 percent of the annual silver production is a by-product of base metal mining, especially of copper mining.
Rising nationalistic sentiments and geopolitical tensions have also led to greater jurisdictional risk, which could hamper further production.
“There won’t be a lot of deposits coming in because they take a long time to get to production… dollars needed just to go into productive mode,” Smith said.
“So these things are going to be coming online less frequently, as a lot of it is in country risk areas that are now questionable with higher taxes and social governance issues. There will be fewer copper deposits to come in the next 10 to 15 years than many people realize. “
For these reasons, Smith believes the prices of silver should be higher.
Silver Price Update: Breaking Third Quarter Fall Values
At the end of September, the white metal’s values fell to a year-to-date low of US $ 21.52 (September 29), down 15.93% from January.
As prices fell, the disparity in the gold / silver ratio widened, reaching an annual high of 80.17 on September 30, an increase of 16.11 points from February’s low of 64.26.
Silver price performance in Q3 2021. Chart via Kitco.
However, the September consolidation served as the starting point for the metal’s performance in the fourth quarter with prices rising throughout October.
Widespread inflation, mixed with the Fed’s announcement of the end of pandemic aid, has helped move silver closer to its precious metal sister.
“What tends to happen is when a major resistance zone in silver is broken and it tends to lag behind gold, then the pyrotechnics kicks in,” Smith explained. “And a lot of people will look at other resistance levels and try to turn a profit when those levels are hit.”
Still, as he noted, it’s hard to say whether the white metal will hit the US $ 50 level.
“Silver likes to slice through these levels, so predicting (a price move) is really hard,” he said.
While the US $ 50 threshold may be difficult to predict, Chris Marchese, chief mining analyst at GoldSeek and SilverSeek, sees the white metal breaking through the US $ 30 range in the near term.
“I’m still very optimistic about the money,” he said in an interview in September. “Once it breaks through that US $ 30-31 level, I think it will test all-time highs in the next six to eight months, maybe less.”
Chris Marchese: What Could Move ‘Grossly Undervalued’ Mining StocksYoutube
Listen to Marchese discuss the above mining stocks.
For Marchese, the move to US $ 30 must happen in a meaningful way.
“Ideally (this happens) at a monthly close, maybe quarterly, on good sustained volume, not just (an) intraday hit (where it goes) US $ 30.10 and then back down,” Marchese said.
“It can’t be like that, you have to at least close the week, month and quarter above US $ 30 and once that happens I think all systems go from US $ 50 to US $ 60. US $ money. “
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Securities Disclosure: I, Georgia Williams, do not hold any direct investment interest in any of the companies mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or completeness of any information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investment News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.