Silver Futures Step Out of Gold's Shadow in Surge to 3-Year High
Comment of the Day

July 20 2020

Commentary by Eoin Treacy

Silver Futures Step Out of Gold's Shadow in Surge to 3-Year High

This article by Justina Vasquez, Krystal Chia and Ranjeetha Pakiam for Bloomberg may be of interest to subscribers. Here is a section:

“Silver is currently trading at close to a record discount to gold, which should attract demand,” Goldman Sachs Group Inc. said in a note this month. “Silver often tends to lag gold at the beginning of a precious rally, and catch up to it as the rally continues and investors look for ways to diversify.”

During the week through Tuesday, hedge funds and other money managers added to their bullish bets on silver, boosting net-long positions to the highest since late February, according to government data Friday. That amounted to “a larger-than-usual” US$638 million bullish flow spurred by the trifecta of rising haven demand, recovering industrial activity, particularly in China, and South American supply disruptions, according to Societe Generale SA analysts including Michael Haigh.

Green Stimulus
Unlike gold, silver’s price is largely driven by a host of manufacturing applications. Morgan Stanley estimated that industrial demand makes up 85 per cent of silver demand. The metal may be poised to benefit from a push toward less-polluting energy technologies such as solar power, according to BMO Capital Markets.

With eyes on recovering industrial demand in countries including China, the world’s largest consumer of industrial commodities, some investors may be buying silver as a bet on new technology. U.S. Democratic presidential nominee Joe Biden outlined a goal last week of “a carbon pollution-free power sector by 2035” -- a move that would require rapid acceleration in the deployment of renewable wind and solar power as well as electricity storage, while continuing to rely on emission-free nuclear power.

“Silver-intensive areas such as 5G and solar technology could well benefit from any fiscal impulse,” BMO analysts including Colin Hamilton said in a research note. “More than US$50 billion of green stimulus has been approved by governments thus far this year, over which roughly three-quarters has been in Europe. But perhaps more impactful has been the recent Biden campaign Clean Energy plan, most notably a zero-carbon power grid by 2035 which would see new wind and solar capacity built to displace thermal generation.”

Eoin Treacy's view

The price of any asset is influenced by the actions of marginal buyers. Therefore, new sources of demand and limitations on supply tend to have an outsized influence on the prevailing trend. Silver is used in solar panels, electronics and communications equipment. It also has healthcare applications as an antibacterial.

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