The price of silver has risen enormously in recent months. On March 19, 2020, its price was about $12 per ounce. But, as of July 14, the price exceeded $19. This signals a price increase of almost 60% in less than four months. What explains this?
According to Avery Goodman, a Securities lawyer and market analyst, the precious metal price exploded as a result of an explosion in the demand for physical silver.
Analysts think that overwhelming physical demand can always overcome any manipulation of the prices if there is no minimum amount of product that supports it.
More dramatic rises in silver price are yet to come
On April 30, the total open interest on COMEX silver futures, maturing in July 2020, was 99,406. Those contracts expired on June 29. So far, short-sellers have already delivered 13,919 contracts. Meanwhile, more than 2,418 July contracts are still waiting for delivery. Each contract represents, in theory, 5,000 ounces of silver. It means that, in July, a total of 81,685,000 ounces of the white metal will have to be delivered.
The July delivery demand in COMEX alone will amount to 2,541 metric tons of silver. The total world production of silver in 2019, according to Statista, was 27,000 tons. In a single month, in a single exchange, in New York City, which was once a paper-based market, long buyers have demanded an entirely physical delivery of 9.41% of the world’s supply of the metal production. Traditional centers of physical demand for silver also continue to demand the metal.
For example, since January this year, India’s silver jewelry manufacturing exports have increased from $832 million to $1.7 billion, a significant 104% increase. Most of India’s jewelry exports go to Hong Kong and China. This indicates that, despite the COVID-19 pandemic, the demand for silver jewelry has increased tremendously. Perhaps, that is also true for the silver bullion demand, just like what is happening in the United States. Unfortunately, as with everything involving China, it isn’t easy to obtain accurate and reliable numbers.
In any case, the total open interest on COMEX silver futures contract numbers maturing in September (the next primary delivery month) is currently 140,262. If a similar percentage of buyers require delivery, a little less than 23,000 contracts, or more than 3,500 tons of silver, they will have to be delivered.
Avery Goodman states that investors are likely to be trying to buy silver bullion desperately. This can result in a dramatic rise in the white metal prices. Short-sellers have already depleted much of the supply available this month.