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Metals Market Report Weekly Archive
 

The Mike Fuljenz Metals Market Report

July 2019 - Week 2 Edition

2020 Silver Secrets Report - The Case for $18 Silver by Year-End 2019 and $20 in 2020

A number of mainstream investment banks and commodity market analysts see fundamental reasons why silver ought to be higher – perhaps $17 to $18 later this year – even though silver remains mired around $15 now. Three major banks have issued price projections of $18 for 2019: Bank of America Merrill Lynch, Natixis and ABN AMRO. In addition, the commodity market analysis group Capital Economics predicts $17.50 silver this year. Some private firms have predicted even higher prices of $20 and more.

Their reasons are fundamentally sound: Positive investor sentiment has driven higher bullion coin sales, while industrial demand has also risen, and new supply has fallen slightly over the previous year. Rising demand and falling supply generally yield a rising price, unless massive amounts of old supplies come onto market.  In addition, there are the financial considerations that also impact gold: falling interest rates in the U.S. and around the world, soaring debt levels in the U.S., and a weakening U.S. dollar as a result.

Here are the supply/demand realities: According to the Silver Institute, global silver demand hit a three-year high in 2018, surpassing one billion ounces after falling just short of one billion ounces in 2017. At the same time, global silver mine production fell for the third straight year, falling 2% to 855 million ounces.  Total new supply fell 2.7%, from 1,032.6 million ounces in 2017 to 1,004.3 million ounces in 2018, while demand grew 3.5%, from 998.4 million ounces in 2017 to 1,033.5 million ounces in 2018.

That means there was a 34.2-million-ounce silver surplus in 2017 (surpluses tend to depress prices), while there was a 29.2-million-ounce shortfall in 2018. (Shortfalls tend to boost prices.)  These shortfalls and surpluses aren’t always reflected in immediate price action, since speculators tend to control the price of the metal on the futures market by bidding the price up or down based on their own future expectations, but supply and demand win out over time, as shrinking supply and rising demand create higher prices.

Silver is a “Double Play” Metal – an Industrial Metal and Precious Metal

Silver was the first form of money. Silver ingots were the first material used as currency in trade over 4,000 years ago. Silver was mined in modern-day Turkey in 3000 BC and was used by the ancient Greeks for money.  The first minted coins were made in Lydia in 600 BC and made of gold and silver (electrum).

Silver has always been a double play metal, including use in coinage and decoration (such as silverware, jewelry and fine plates) and a rising array of uses in industry, far beyond its original use in traditional photography. Breaking down silver demand by category, more than half of demand comes from industry:

 

The biggest percentage increase in 2018, by far, came in demand for silver coins and bars, rising 20.5% from 150.4 million ounces in 2017 to 181.2 million ounces in 2018.  This investment demand accounted for the entirety of the growth in total silver demand for the full year 2018. This trend is continuing in early 2019.  In the first six months of 2018, for instance the U.S. Mint sold 6,822,500 1-ounce Silver American Eagles, but in the first six months of 2019, Eagle sales grew by 47% to 10,022,000 ounces.

Turning to industry, silver has many industrial uses, accounting for more than half of annual demand worldwide in each of the last five years. Basically, when the world is growing, silver demand grows. Silver has the highest conductivity of any element for electricity and heat. It is valuable for soldering or brazing alloys. It’s used for batteries, medicines, nuclear reactors, photovoltaic (solar) cells, dentistry, glass coatings, RFID chips (that track shipments), nuclear reactors, touch screens, water purification, wood preservatives, semiconductors and many other uses – in addition to traditional photography.  Silver’s powerful antibacterial properties also give it several new applications in medical fields.

Silver has this “industrial advantage” over gold – which has very few industrial applications. That’s why silver acts like “gold on steroids” during a bull market in precious metals. With its huge undercurrent of industrial demand, there is a powerful floor under the silver price these days, so investors can buy silver with the assurance that the supply/demand curve will continue in their favor over the long term.

As a precious metal, silver also attracts attention from investors who cannot afford multiple ounces of gold bullion.  Since silver tends to follow gold up, but in greater percentage terms, if gold makes a move this fall, silver could rise more.  Gold is currently rising over the U.S. debt crisis and the recurring war of words with China, North Korea, Iran and other crises.  During the debt ceiling debate of 2011, gold rose nearly 30% to an all-time high. If we see a similar crisis in late 2019, gold could rise…and silver could soar.

And here’s the kicker. As of July 8, 2019, gold is $1,400 and silver is $15.07, yielding a gold-silver ratio of 93-to-1, a 28-year high. The all-time high was 100-to-1 in 1991.  After that, the most recent low ratio was 31-to-1 in 2011, and the 20th century low was 15-to-1 in 1980. There is no magical historical ratio of silver to gold, but in historic terms, silver has a lot of room to catch up to gold from these 93-to-1 levels.

Gold Is Up in the Last Two Months

Gold went back and forth, above and below $1,400 all last week, but in the last two months, gold is up over 10% and silver is up almost 3% vs. barely 1% increases for the two major stock market indexes.


Certified Gold Coins Exceed Gold’s Rise – and Become Scarce – in The Last Two Months

On May 8, gold traded at $1,290.  Two months later, gold traded at around $1,400, up $110.  In that same two-month period, MS-64 common-date $20 Liberty double-eagle gold coins – graded by PCGS or NGC – rose $195 in price.

In the last two months, we have gone from an excess supply to a shortage, and that shortage will likely soon get worse, since European suppliers do not make their coins available in the late summer as they generally take six weeks vacation starting in late July.  Europe is basically “closed for coin business” during August, including banks and coin dealers, so we may see prices rise sharply soon. Be sure to call your representative for rare gold now.

 

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