2021 Silver Market Trends: Demand Increases as Supply Declines
Silver held over USD 20 per ounce for the first time since 2014 in 2021, thanks to a rise in demand in 2020. However, while investor optimism prevented silver from falling below USD 21, broader market volatility and concerns about industrial demand kept it rangebound throughout the year. As a result, silver's value maintained steady in the first half of 2021, with the white metal reaching a 10-month high of USD 27.92 on June 21. The silver price has stabilised in the months after that, going lower every month until reaching a year-to-date low of USD 21.52 at the end of September. Gold's companion metal increased in value throughout October and November, reaching USD 22.82 at the end of the month.
Demand for Investment - A Significant Quarter 1 Driver of Silver Trends in 2021
2021 began with silver trading in the USD 26 zone before an online social media outlet sparked trade activity that propelled the metal to an eight-year peak in mid-February.
Members of the Reddit community WallStreetBets kept a keen watch on silver as web-savvy speculators targeted GameStop (NYSE: GME) short-sellers. Members of WallStreetBets have already distanced themselves from silver, but the ‘silver squeeze’ spread swiftly across platforms such as Twitter (NYSE: TWTR), attracting new players.
On February 1, the price of silver reached an eight-year high of USD 28.55 before falling to USD 26.10 four days later.
Gareth Soloway, the chief market strategist at InTheMoneyStocks.com, told the Investing News Network (INN) at the time that it is demonstrating the enormous impact of social media.
When someone has 3 or 4 million individuals investing in a stock, even if it is just USD 1,000 or USD 2,000, it may cause a stratospheric spike in these equities.
Consequently, demand for silver exchange-traded products (ETPs) reached an all-time high in the first quarter, with holdings topping 1.2 billion ounces, a six-year record.
Silver had stabilised into the USD 24.90 area by the end of the three-month timeframe.
Duality in 2021 Silver Trends Helps Demand Grow
Even though the Reddit-induced frenzy subsided early in the year, rising silver investment demand remained a pattern in the months that followed.
Silver's link to gold, as well as its links to the base metals sector, helped it climb to a year-to-date high in Quarter 2.
According to Metals Focus' annual ‘Precious Metals Investment Focus’ report, silver began to recover after touching a four-month low of USD23.78 at the end of March, reaching a three-month high of USD28.90 by mid-May, as support emerged from a weaker dollar and the drop in yields over much of this period.
During the quarter, the global economic recovery lifted the white metal's price increase, with industrial demand continuing to rebound following the disruptions of 2020.
Silver was also bolstered by the continued solid increase in base metal prices as the global economy came back to life. According to the precious metals report, COMEX positioning and ETP holdings strengthened as silver sentiment improved, with the net managed money long increasing by 75 percent in April.
Silver has risen 12 percent since the beginning of April to USD 27.92 by mid-June. The US Federal Reserve's aggressive tone, which predicted that interest rates would likely increase twice before 2023, aided the mid-year rally. However, values plummeted below USD 26.50 a week later and continued to fall.
The silver price ended the second quarter with its only quarterly increase of the year, up 2.17 percent from April's USD 24.92 level to USD 25.46.
According to Silver Trends, Rising Demand Led to a Supply Shortage in 2021
The white metal plummeted to a year-to-date low of USD 21.52 at the end of September, a 15.93 percent drop from January, following a summer of uncertainty and silver market doldrums. However, the metal's fourth-quarter performance was launched from the September consolidation, with higher prices during October.
The silver price was increased by widespread inflation, increased demand, and the Fed's statement that pandemic help would be phased off. As a result, silver ETPs had gained 87 million ounces for the year by mid-November, bringing total holdings to 1.15 billion ounces.
Industrial demand surged despite global supply disruptions and chip scarcity. The green energy industry, which uses silver in photovoltaics and other applications, accounted for a large portion of demand. Metals Focus predicts that industrial demand will have risen 8 percent to 524 million ounces by the end of the year.
Physical demand is also on track to hit a six-year record, with purchases of bars and coins up 32 percent year over year to 263 million ounces (Moz). Much of the rise can be attributed to increased investments in the United States and India.
The Silver Institute's November "Interim Silver Market Review" reads, Building on good growth last year, US coin and bar demand are likely to top 100 Moz for the first time since 2015. The social media purchasing frenzy sparked the development, expanding to more traditional silver buyers. The paper continues Indian demand indicates improving sentiment about the silver price and a rising economy. Overall, physical investment in India is expected to nearly triple this year after plunging in 2020.
For the first time since 2015, Metals Focus and the Silver Institute predict that overall demand will hit 1.29 billion ounces in 2021, owing to an upward trend across all demand groups. On the other hand, the supply component has been continuously contracting since February, even though mined silver production increased 6 percent year over year to 829 Moz. The Silver Institute's evaluation states that this rebound is primarily the consequence of most mines running at total production rates throughout the year following forced stoppages in 2020 due to the epidemic.
The countries with the highest gains in output will be Peru, Mexico, and Bolivia, whose production in 2020 was severely affected by the epidemic.
Meanwhile, despite increased input costs, good silver, and by-product metal prices this year have enhanced profitability in the silver mining industry.
In the first half of the year, the industry's average margins were at their best since 2012, with just 5% of worldwide primary silver mines running with expenses over the silver price.
In 2021, a significant rise in demand combined with sluggish production growth would result in a 7 Moz physical shortage, the first in six years.
The only precious metal expected to be in deficit this year is silver. However, the white metal has underperformed compared to gold and base metals despite a tighter market and good demand fundamentals.
Silver Prices in 2021: The Metal is Undervalued as the Year Ends
Even though silver outperformed gold in 2020, the gold-to-silver ratio has stayed over 73 since August and reached an all-time high of 80.19 in September.
Neil Meader, the London-based director of gold and silver at Metals Focus, discussed why silver prices had lagged gold during a presentation on precious metals in early December.
He believes it is because it lacks the protective foundation that gold provides. Gold is widely seen as a haven, whereas silver is slightly more speculative. To witness a significant shift in the gold-to-silver ratio, everyone may need a rally when silver's higher beta truly kicks in.
The price of silver hit a 45-day high of USD 22.87 at the end of November. However, the metal has suffered headwinds in recent weeks because of the spreading Omicron variant, which has dragged on the commodities market.
Even yet, the end-of-year dip is likely to be short-lived, as bargain hunters may drive up demand in an already oversupplied market. Apart from such considerations, some industry insiders believe market manipulation is to blame for silver's failure to break higher in 2021.
Chris Marcus, the creator of Arcadia Economics, has spoken out strongly against this issue, which he says is suppressing white metal. Nonetheless, he concluded by saying that he would be ‘stunned’ if the white metal was still trading in the USD 25 area in 2022.
In a conversation with INN at the end of 2021, he added that in his opinion, if one sees silver over USD 30 for a couple of days on a Thursday, and it gets up to USD 31 or USD 32 on Friday, and it's still in the USD 30s on Monday, it could as well be USD 50 at that time.