where next for the precious metal?

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The spot price of silver has stabilized at the level of $ 24 an ounce after a sharp drop in late September that brought the precious metal down to $ 21 for the first time since July 2020. That’s an increase of 11 % in a month.

Precious metals markets defied expectations of a price rally in response to rising inflation and macroeconomic uncertainty, with central banks, including the US Federal Reserve (Fed), saying they would ease fiscal stimulus and start raising interest rates next year. The strengthening of the US dollar, as measured by the DXY index, added further downward pressure.

What does this mean for metal? What will the expected price of silver look like in 2022 and beyond?

In this article, we take a look at recent market performance, along with the latest silver forecasts from analysts and forecasters.

Money struggles despite uncertain macro backdrop

The silver price trend fell sharply in June in response to bearish comments from the Fed. Investors tend to increase their exposure to silver and gold when interest rates are low and inflation high to protect the value of their money from erosion and lack of interest payments. However, the prospect of transient inflation and rising interest rates has driven investor interest down.

Silver was “a noticeable lag against gold most of the summer,” with the gold-to-silver ratio dropping from 67 to 77, noted Nicky Shiels, analyst at MKS-PAMP, in a recent report on perspectives. The ratio refers to the number of ounces of silver needed to buy one ounce of gold. Silver “missed the trade in reflation and fell behind the sharp revaluation of base metals / copper due to physical overhang.”

Shiels noted that silver markets remain structurally in surplus due to a mix of primary production and mining byproducts. Fundamental surpluses excluding investment demand have increased since 2018. But supply chain disruptions and strong regional industrial demand for high-grade silver have kept physical prices tight. Retail investor demand for silver coins is on track to peak in five years. However, traders and investors have sold 120 million ounces of silver so far this year – on holdings of around one billion ounces.

The 14.5% drop in silver showed that physical demand was not sufficient to absorb the excess supply.

Silver mining company First Majestic Silver (AG) reported in its quarterly results on October 12 that it had suspended silver sales in the third quarter because it resisted higher prices. It said:

“At the end of the quarter, the company had 1.4 million ounces of silver in inventory due to falling silver prices in the third quarter. Silver sales are expected to pick up in the fourth quarter.

The company’s silver production increased 1% from the previous quarter to 3.3 million ounces.

Silver inventories held at the LBMA fell 0.2% in September to 36,486 tons, valued at $ 25.2 billion and equivalent to about 1.2 million silver bullion. The decline indicated that investors were selling stocks.

Falling back on the negative silver price news, Ole Hansen, head of commodities strategy at Dutch bank Saxo, wrote on October 11:

“Hedge funds had another chance to trade precious metals on the long side, with net gold rising 61% to 67.8,000 lots and long silver 1,000 to 4.6,000 lots. In general, exposure to both metals remains low given the current struggle of the two metals to rally a rally in times of favorable price developments. ”

The US personal consumption expenditure index, a measure of the prices people pay for goods and services, rose 4.3% year on year in August, the largest increase since 1991. The Fed uses the index to assess inflation. The data, released Oct. 1, supported the price of silver.

Silver rose from $ 22.47 on September 28 to $ 21.49 on September 29, then climbed back up to $ 22.05 on September 30 and to $ 22.54 on October 1. It has since traded between $ 22.56 and $ 24.56.

JP Morgan’s Global Manufacturing Purchasing Managers Index (PMI), also released on October 1, was unchanged in September at the six-month low of 54.1 recorded in August. However, that pointed to the 15th consecutive month of expansion, with output growth accelerating for the first time in five months.

Silver is used in a range of industrial applications, from solar panels, electronic and electric vehicles to medical devices, water purifiers and wood preservatives. With industrial consumption accounting for about half of the annual global demand for silver, industrial activity has an impact on silver prices.

Industrial uses of silver

As always, it is essential to keep in mind that past performance is not an indicator of future returns.

So, will the price of silver go up or down next year?

Silver Price Prediction: What’s Next for the Precious Metal?

When looking at the silver market going forward, analysts continue to balance expectations that inflation may support the price against monetary policy which may continue to exert downward pressure.

Zaner’s Oct 12 technical analysis said, “We see the path of least resistance pointing down for gold and silver. Among the bearish forces there is first and foremost the lack of responsiveness to classic bullish forces like macroeconomic uncertainty and inflation… The silver consolidation low support is seen at $ 22.38, then again at $ 22.18. In order to reverse the bullish trend in the silver market, it takes a rally above a seven month old downtrend channel resistance line, which today hits $ 23.39. “

Capital Economics analysts are bearish on long-term silver forecasts. They wrote in a recent comment:

“We believe that weaker physical demand, higher real US Treasury yields and a stronger dollar will mean that the recent poor performance in the price of silver is expected to continue over the next two years.”

But analysts at Australian bank ANZ predict silver will average over $ 24 in the second half of 2022. They wrote in their monthly outlook for gold and silver: “The Fed has signaled a decline and rate hikes are imminent. Nonetheless, we believe negative real yields and inflation expectations should support investment demand. The USD is expected to remain weak as other central banks will lead the Fed in their rate cuts and hikes. ”

Shiels at MKS PAMP sees the silver market as “fundamentally over-supplied, but attractive as a proxy for cheap high beta gold with an energy transition ‘booster’.”

The analyst noted that its “unique properties imply that silver will play a critical role in the clean energy transition, spanning production, storage and consumption (for example: ranging from silver oxide batteries, solar panels, BEVs, the growth of 5G networks). “

Shiels has a baseline average forecast of $ 28 per ounce for the value of silver in 2022, down from $ 26 per ounce in 2022, with an increase between a “new post-Covid QE cyclical bottom” of 22.50 $ and the peak in retail demand of $ 30 per ounce seen earlier this year.

The bullish case based on strong physical and investment demand as well as supply chain risk puts the price at around $ 35 an ounce, while the bearish case of higher interest rates and a stronger dollar would see the price drop to around $ 15 an ounce.

Investment bank silver price forecasts

Prediction site silver price prediction based on an algorithm WalletInvestor suggested at the time of writing (Nov 4) that the precious metal could end 2021 at $ 24.495 per ounce, 2022 at $ 28.57, 2023 at $ 32.65, 2024 at $ 36.91 and 2025 at $ 41.05.

When reviewing analyst comments or predictions from algorithm-based forecasting services, it is important to keep in mind that they can be wrong and they can be wrong. You should always do your own research, taking care to take into account all relevant market conditions.

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