Money trends 2021: first driver of investment demand in the first quarter

2021 started off with silver holding in the US $ 26 range, before a social media forum pushed the metal to an eight-year high in mid-February.

Performance of the price of silver over 10 years.

Chart via Kitco.

The first quarter rise was the result of a Reddit-induced money squeeze, which saw savvy investors across the web rushing for money. As the news spread on Twitter (NYSE: TWTR), the price of silver climbed to an eight-year high of US $ 28.55 on February 1 before dropping to US $ 26.10 four days later. .

“It really shows us that the power of social media is immense,” Gareth Soloway, chief market strategist at InTheMoneyStocks.com, told the Investment News Network (INN).

“When you have 3 or 4 million people, even if they’re just putting US $ 1,000 or 2,000 in a stockpile, it can cause those stocks to skyrocket. “

As a result, demand for exchange-traded silver products (ETP) hit an all-time high during the first quarter, when holdings exceeded 1.2 billion ounces, marking a six-year high in demand from the segment.

At the end of the three-month period, prices stabilized in the US $ 24.90 range.

Money trends 2021: duality at the service of growth

While enthusiasm for Reddit may have subsided at the start of the year, growth in investment demand continued to be a trend over the following months.

Silver-to-gold’s relationship and ties to the base metals sector helped prices rebound to year-to-date highs in the second quarter.

“After hitting a four-month low of US $ 23.78 at the end of March, silver started to rally, hitting a three-month high of US $ 28.90 in mid-May, as support emerges from a weaker dollar and lower yields through much of that period, ”reads Metals Focus’s annual“ Precious Metals Investment Focus ”.

The global economic recovery also contributed to white metal price growth in the quarter, as industrial demand continued to recover from the disruptions of 2020.

Silver was also boosted by the ongoing strong rally in base metal prices as the global economy came back to life. As sentiment turned positive for silver, COMEX positioning and ETP holdings also improved, with managed net currency jumping 75% in April, ”the precious metals report said.

In mid-June, silver prices hit US $ 27.92, up 12% from early April. The mid-year hike was largely aided by the hawkish tone of the Federal Reserve, which said interest rates would likely rise twice before 2023.

A week later, values ​​fell below US $ 26.50 and continued to decline.

By the end of the second quarter, silver prices had registered their only quarterly gain for the year, rising 2.17%, from US $ 24.92 to US $ 25.46 in April.

H1 price performance of silver.

Chart via Kitco.

Money Trends 2021: Rising demand drives supply shortfall

After a summer of uncertainty and slump in the silver market, white metal prices fell to their lowest level since the start of the year at US $ 21.52, down 15.93 % compared to January. However, the September consolidation served as the starting point for the metal’s performance in the fourth quarter, with prices rising throughout October.

Widespread inflation, rising demand, and the Fed’s announcement of the end of pandemic aid have all been positive winds for the price of silver, pushing it up.

As of mid-November, the ETP space on silver had added 87 million ounces for the year, bringing total holdings to 1.15 billion ounces.

Despite global supply disruptions and a shortage of chips, industrial demand has also increased. The green energy sector, where silver is used in photovoltaics and other segments, has largely contributed to the demand. Metals Focus predicts industrial demand will have increased 8% by the end of the year to 524 million ounces.

Physical demand is also on track to record a six-year high, as bullion and coin purchases climbed 32% year-on-year to 263 million ounces (Moz). Much of the 64 Moz increase is due to increased purchases in the United States and India.

“Building on the strong gains of last year, demand for coins and bullion in the United States is expected to exceed 100 Moz for the first time since 2015,” said the Silver Institute’s “Interim Silver Market Review”. “The growth started with the social media buying frenzy before spreading to more traditional money investors.”

The November report continued: “Indian demand reflects improving sentiment towards the price of silver and an economic recovery. Overall, physical investment in India is expected to nearly triple this year, after collapsing in 2020. ”

The upward trend in all segments of demand throughout 2021 has prompted the metals consultancy and the Silver Institute to forecast total demand to reach 1.29 billion ounces for the first time since 2015.

On the other hand, the supply segment has contracted steadily since February despite mined silver production up 6% year-on-year to 829 Moz.

“This recovery is largely the result of the ability of most mines to operate at full capacity throughout the year after forced shutdowns in 2020 due to the pandemic,” reads the Silver review. Institute.

The largest production increases in terms of countries will come from Peru, Mexico and Bolivia, where 2020 production has been severely hampered due to the pandemic.

“Meanwhile, the high prices of silver and metal by-products this year have improved the profitability of the silver mining industry despite rising input costs,” he noted. “Average industry margins are currently at their highest level since 2012 and only 5% of the world’s primary silver mines were operating at costs above the price of silver in the first half of the year. .

A significant increase in demand coupled with modest growth in production will lead to a physical deficit of 7 Moz in 2021, the first deficit in six years.

Silver is the only precious metal that is expected to be in deficit this year. However, even with this deficit, market tightening and positive demand fundamentals, the white metal underperformed against gold and base metals.

Silver trends 2021: the metal undervalued at the end of the year

Although silver outperformed gold in 2020, the gold / silver ratio has remained above 73 since August and hit 80.19 at the end of September.

During a presentation on Precious Metals on December 7, Neil Meader, London-based Gold and Silver Director for Metals Focus, explained why silver prices have been lagging behind. gold.

“I think in a lot of ways it’s because gold lacks the defensive backing. It’s pretty common to think of gold as a safe haven, and silver is slightly more speculative, ”he said. “So we might need a rally where the higher silver beta really kicks in to see a substantial change in that gold / silver ratio.”

Silver prices hit a 45-day high in late November, when values ​​hit US $ 22.87. In the weeks that followed, prices faced headwinds from the spread of the Omicron variant, which weighed on the commodities space.

The year-end slump will likely be short-lived, as bargain hunting drives increased demand for the already tight market.

Due to the current environment, Chris Marcus of Arcadia Economics said he would be “stunned” to see the white metal continue to linger in the US $ 25 range.

Watch Marcus explain how market manipulation has kept money from growing in 2021.

Despite the market manipulation Marcus spoke vehemently about in the silver market, he believes fundamentals will take the double metal to US $ 30 and beyond.

“If you see money above US $ 30 for a few days, say you see money above US $ 30 on a Thursday and it goes up to US $ 31 or US $ 32 on Friday, and Monday, it’s always in the US $ 30 range. I imagine at that point it might just as well be US $ 50, ”he told INN.

“Once (the money) gets past that breaking point, you’ll know when you see it, and I don’t think it’s going to take much longer for that to happen.”