Silver Price Climbs Above $20/oz

July 8th, 2016 by

silver rallyAlthough gold gets most of the attention, silver prices have actually outpaced their precious metal counterparts by a pretty wide margin so far in 2016.

Through roughly the first half of the year, spot silver has risen from its low of about $13.74/oz to above $20 per ounce: a staggering 46% increase! Again, that’s only over half of the calendar year. By comparison, spot gold prices have gained about 27% in 2016—still nothing to sneeze at, but far short of silver’s unbelievable performance.

If a stock portfolio appreciated by 46% over a ten-year period, that would be considered impressive. Silver did so in just over 6 months! The remarkable nature of this point cannot be emphasized enough.

Base Metal Boost

Like gold, the silver market have benefited from a surge in safe haven demand amid totally upside-down global economic conditions. This rush for the safety of precious metals was accelerated by the upheaval that accompanied last month’s vote by Great Britain to leave the European Union.

silver_bullOne intriguing factor that has provided a bigger boost to silver than gold is its comparatively higher use in industry. Virtually all of the world’s gold is held for idle financial purposes or jewelry (although a minute amount is allocated toward specialized electronics and the like). Therefore, essentially all of the price appreciation for gold so far this year has been by way of climbing safe-haven demand.

Silver, on the other hand, has also tracked higher with the base metals due to its significant industrial applications. It is used as an anti-microbial disinfectant in medical settings, has uses in electronics, batteries, photography, and is one of the main components of the photovoltaic cells used in solar panels.

According to a group of Commerzbank (Germany) commodities analysts, “Silver has also been profiting from the broad-based strength shown by base metals.” This has been more than enough to offset weaker sales of silver jewelry.

Silver Market Analysis

At its peak this week, the price for the September silver futures contract touched above $21 per ounce. This was its highest trading level since the third quarter of 2014, a fresh two-year high.

Source: etftrends.com

Source: etftrends.com

Yet, Steven Knight of Blackwell Global Investments Ltd. believes that the impact on the silver market should actually be more pronounced. He suggests that “given the ongoing easing around the world and the linkage between expansion in the money supply and inflation, it is surprising that we are not seeing sharply higher silver prices.”

One of the important realities of the silver market that Knight (and others) see as the force behind this possible suppression of higher silver prices is action in the “paper silver” markets—i.e. COMEX silver contracts.

For those who aren’t familiar with how this type of “silver manipulation” happens (or at least theoretically could be accomplished), Knight provides a good outline:

silver manipulation“In particular, the COMEX market for silver derivatives is anything but fair with the big banks issuing Silver derivatives at will in an attempt to keep the price below their bulwark around the 50DMA line at $20.50.

What has largely become known as the ‘Waterfall’ effect, involves the larger financial institutions floating as much paper as needed to ensure a depressed market and some sharp declines in prices.”

Basically, by flooding the markets with so many paper silver contracts, big banks like JPMorgan (who is notorious for rigging the silver trade) can jerry-rig the ostensible silver supply and keep prices much lower than they ought to be. In fact, Bank of America Merrill Lynch (BoAML) has called for silver to “overshoot” $30/oz (and gold to rise to $1,500/oz).

Though some see this theory of silver manipulation as the stuff of the tin-foil hat crowd, it’s worth noting that 1) several major banks have admitted to manipulating the silver markets, and 2) the evidence in the trade of silver futures supports this notion.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.