Supply crisis pushing the silver price to 3-month high

Silver prices started to increase after Friday’s breakout session. 

Phillip Streible, a chief market strategist at Blue Line Futures, said that the demand for the metal has increased while the supply has dropped. These conditions are likely to continue to push silver rates higher.

May silver prices settled at $17.51 an ounce. Since late February, silver futures are selling at their highest level, and have recovered from the March selloff. 

After the Federal Reserve’s industrial production data release for April, silver’s Friday rally picked up new momentum. According to the report, industrial production declined by 11.2% in April, which is the most notable drop in history.

Streible stated that nobody talks about mining numbers in the report. However, somebody was paying attention to it. The data indicates a crushing physical supply. Since the silver market is getting support from all the different angles, the metal prices are going higher.

Ole Hansen, the head of the commodity strategy at Saxo Bank, said that with the metal prices back over at $17 an ounce, the next critical resistance level is $17.50 an ounce. 

Speculative interest in silver has been decreasing since early March as investors shed their bullish bets, as the coronavirus pandemic impacts the global economy. Now silver has room to rally, Hansen said. 

Hansen considers the risk of a second wave of the coronavirus pandemic. Furthermore, the blame game between Trump and China is developing. With all this in mind, Hansen thinks there is a risk of renewed stock market weakness. The dollar could gain more strength, and the Japanese yen could gain safe-haven demand. Precious metals are set to rally further, he said. 

Even though some investors speculating on silver have been hesitant to hold the metal, Hansen stated that investor demand in silver-backed exchange-traded products stays strong. The total holdings of the white metal have touched a record 98 million ounces.

Investment silver demand will grow 16% in 2020

The demand for physical silver by the investment sector will grow 16% at the end of 2020 compared to the last year. However, it is the only sector that sees an increase in silver demand. The coronavirus outbreak has caused a drop in the demand for jewelry, silverware, and industrial applications.

The growth in demand for physical silver by the investment sector totaled 215.8 million ounces (6,712 Mt). This is 16% more than at the end of 2019. The supply of metal will be reduced by 4%, with a drop of 5% in mineral production and a reduction of 0.3% in recycling. 

The Silver Institute estimates that the industrial demand for silver will be 7% less than in 2019.

The jewelry sector will also reduce its demand by 7%, to 187.5 million ounces (5,832 Mt), while the silverware sector will drop by 9% (the same drop as in 2019), to 54.3 million ounces (1,689 Tm).

The only sector that breaks this downward trend is the aforementioned physical investment sector, which will surge up by 16%, going from 186.1 to 215.8 million ounces (5,788 to 6,712 Mt).

Also worthy of mention, is the fact that the demand for investment in silver also grew by 12% last year.