With the price of silver having fallen 20 percent over the past 3 months, silver prices are now back within sighting distance of their post-GFC lows.
Additionally, the gold-to-silver ratio is sitting around eighty-five to one, well beyond the historical norm of around fifty to one; ratios that are close to the highest seen in the past 100-years.
The low prices have caused the US mint to temporarily sell-out of the 2018 American Silver Eagle bullion coins, as low silver prices have attracted investors looking for a bargain.
“The sell-out of Silver Eagles implies that demand for physical [silver] has recently been increasing,” says Chris Gaffney, president of World Markets at TIAA Bank. He added that high demand “makes sense,” given that prices are nearing multiyear lows.
Despite what the current low prices might suggest, the net demand for silver remains robust; there was an estimated supply deficit of 26 million ounces of silver last year according to the Silver Institute.
Analysts also expect current silver prices to attract more buyers, as its “now very undervalued, relative to stocks, bonds, and, indeed, gold,” maintains Mark O’Byrne, research director at precious metals brokerage GoldCore in Dublin.
Weak silver prices are often attributed to strength in the US dollar, which makes holding silver relatively less attractive. This has been quite pronounced recently as the US dollar has risen on rising interest rates, and a sell down in emerging market currencies. The strong dollar has resulted in significant short futures positions on silver – which is the mechanism that has forced prices lower.
In fact, short positions on silver reached their greater level ever over the past few months, allowing silver prices to reach potentially extreme lows. However, with all short-selling, there must be buying to close the short position, and with shorts at record levels, there is potentially a large bounce in prices on the horizon.
For those interested in trading silver – you can gain a leveraged exposure to silver prices by using mini-warrants. If you would like more information on trading silver or other commodities using mini-warrants, don’t hesitate to contact your TradersCircle advisor on 03 8080 5788.