Silver surged 3.65% on Monday and have surged 8% in just six trading days. Silver rose 56 cents from $15.34 to $15.90 per ounce on Monday, and consolidated on those gains yesterday to close above the psychological resistance of $16 per ounce.
Since last Monday (April 4), silver has surged from $14.93 to $16.12 per ounce for an 8% gain as ongoing robust physical demand finally seems to be impacting on prices which remain depressed. Silver is now testing technical resistance at $16.15/oz and a close above that level could see silver quickly move to test the next level of resistance at $18 per ounce seen in May 2015 – see silver chart here.
The surge in recent days was impressive as it came against a backdrop of negative economic data, concerns about corporate earnings, the U.S. and global economy and weakness in stock markets globally.
The supply demand dynamics in the silver market remain conducive to higher prices in the coming months. Industrial and particularly investment demand for silver is strong.
Industrial demand for silver is expected to rise 3% in 2016 according to Capital Economics. Silver investment demand has risen by 400% from under 50 million ounces in 2006 to 200 million ounces in 2015. Investment demand remains robust as seen in the silver holdings of the iShares Silver Trust, the biggest exchange-traded product in the metal. SLV holdings have increased by nearly 9% year to date.
This is also seen in demand for silver bullion legal tender coins such as Perth Mint silver coins which had their second best month of demand ever in March.
Separately, one of the leading silver investment vehicles – the Sprott Physical Silver Trust, a trust created to invest and hold nearly all of its assets in physical silver bullion and managed by Sprott Asset Management LP, announced last week that it has priced its follow-on offering of 12,300,000 transferable, redeemable units of the Trust (“Units”) at a price of US$6.09 per Unit (the “Offering”). The gross proceeds from the Offering will be US$74,907,000 and this will likely result in a substantial amount of silver coming out of an already quite tight market.
Investment demand is likely to remain robust and may even increase due to ineffectual QE policies, still ultra loose monetary policies, negative interest rates leading to increased allocations to non yielding, but non negative yielding silver.
Silver remains undervalued from a historical perspective and from the all important inflation adjusted perspective. This means that reaching the record nominal high over $49/oz (seen in 1980 and 2011) is likely again.
Longer term the inflation adjusted 1980 high of $150/oz remains realistic – especially given the increasing use of silver in various industrial application and silver’s increasing investment demand – with silver continuing to be seen as the cheaper, better value, alternative to gold.