The beleaguered silver market could soon get a big break, based on a recent series of statistics. The data paint a sanguine picture for the industrial metal and suggest higher prices are ahead, suggests Clif Droke, editor of Cabot SX Gold & Metals Advisor.
Although silver prices are down over 20% from a year ago, recent CFTC Commitments of Traders (COT) reports reveal that commercial hedgers (the so-called "smart money" in the silver market) are at one of their lowest levels of holding short positions in years.
Moreover, the Silver Institute's World Silver Survey 2022 report states that higher mine production (due to project ramp-ups gains in established mines' output), plus higher industrial recycling are expected this year, resulting in a projected 3% increase in global silver supply.
However, the higher supply will be insufficient to meet the 5% increase in global demand the Silver Institute is forecasting for 2022 (due to improvements in industrial fabrication along with higher post-pandemic jewelry demand).
Specifically, the report predicts total silver supply this year will exceed 32,000 tons, not enough to match the more than 34,000 tons of silver demanded projected, leaving a market deficit of around 2,220 tons.
As an aside, the Silver Institute notes that the accelerating demand for electronic vehicles (EVs) and autonomous vehicles should serve as a long-term boost for silver demand. The 2022 survey said the shift to EVs has resulted in "growing demand for silver-coated or silver-alloy wires, that provide high-frequency transmission of big data" used in today's high-tech automobiles.
On the supply side, London Bullion Market Association (LBMA) vaults now hold less than a billion ounces, which amounts to a 15% loss from a year ago and the lowest since December 2016 (and immediately prior to the launch of a 17% rally in silver prices in the four months that followed).
Putting all the pieces together, silver's outlook is as positive as it has been in recent memory. Accordingly, I'm moving to add a new position in our favorite silver-tracking ETF.
My favorite silver-tracking fund, the iShares Silver ETF (SLV), has shown some notable technical improvement in the last several days. SLV is back above its 25-day line after spending the better part of the last four months under it.
The fund is still under the more psychologically significant 50-day line, but with short interest factors in silver's favor, the odds favor SLV eventually getting back above this key trend line. Accordingly, investors who don't mind the volatility risk associated with buying near a major low can purchase a conservative position in SLV.