Silver has soared more than gold this year amid the coronavirus– but can it last?
- Silver has gained more than 50 per cent this year. Local shops having trouble meeting demand
- Safe haven commodity can be very volatile – and could sink if a coronavirus vaccine is found
Silver has soared this year – outpacing even superstar gold – driven up by global uncertainties around the coronavirus and by shortages that have prompted investors to snap up silver-backed exchange-traded funds as well as coins, bars and other physical assets.
“All of a sudden, people call us and are ordering silver,” said Pádraig Seif, partner of Precious Metal Asia, a trader based in Hong Kong. “And they're not buying just small quantities. They're buying a hundred kilos here. So, I say right now, we have more silver transactions than gold transactions.”
Anyone who has invested in silver knows how extremely volatile it can be, explaining why it has been called everything from “the devil’s metal” to “gold on crack”.
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Silver was trading at US$27.10 per ounce on Thursday. Earlier this month, it hit US$29.13, a level it hadn’t reached in more than seven years. Meanwhile, the increasing popularity of ETFs has made it easier for investors to get in and out of silver: they’ve snapped up 284.6 million ounces of silver through ETFs, a 47 per cent increase since the beginning of this year, according to Bloomberg data.
Perhaps predictably for such a volatile metal, silver sparks considerable disagreement among silver bugs and analysts about what lies ahead.
Analysts tracked by Bloomberg predict silver will slump to US$20.40 per ounce in the fourth quarter, according to the median forecast. JPMorgan sees it rising in September before falling to US$21.44 in the fourth quarter.
But Stephen Innes, chief global equity analyst at AxiCorp, foresees silver surging to between US$30 and US$35, while Hong Kong metals trader Seif is even more bullish, saying he sees it soar to US$40 or US$50 by the end of the year.
Silver, traded for thousands of years, hit a record high of US$49.45 in January 1980, in the days of hyperinflation under US President Jimmy Carter. When inflation since 1980 is taken into account, that’s the equivalent of about US$153 in today’s dollars.
But, this year, silver has been on fire. In July alone, it shot up 34 per cent – its biggest monthly gain since December 1979, when it rocketed nearly 70 per cent. August is on track for another stellar gain, with the price up 11 per cent as of Thursday. But to underscore how volatile silver is, it fell nearly 15 per cent on August 11 – the day after hitting a seven-year high – as traders panicked and pulled out to salvage gains.
Why has silver been having such a sterling year?
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In part, it’s because the pandemic has disrupted silver mining and air transport, a big way silver is shipped. Another factor is that uncertainty – from rising US-China tensions to the virus and threat of inflation as governments turned on the cash printing machines – bodes well for silver, which like gold is widely viewed as a safe-haven asset.
“It’s actually a bit of a perfect storm,” said Seif of Precious Metal Asia. “You've got an economy that is haemorrhaging. You've got a banking crisis looming, and you've got cash or currency devaluing.”
Economic recovery globally could boost silver because it is used in the manufacture of so many products, from batteries and LED chips to nuclear reactors and solar panels.
However, if a vaccine is discovered, silver prices could tumble hard, analysts say.
“If we do have an effective vaccine which is available for the general public, that’ll be extremely negative for both silver and gold,” analyst Innes said.
China’s gold consumption ‘fell significantly’ in 2020 due to coronavirus
Locally, a number of Hong Kong dealers report having trouble getting enough physical silver to meet demand.
“We've seen a record number of transactions for our company in its history,” said Keanan Brackenridge, product manager of LPM in Central. Some customers have bought as much as 5,000 ounces (about 140kg) of silver in one go, he said, and he has found it hard to acquire enough to meet demand over the past five months.
Meanwhile, Kitco, another precious metal retailer in Hong Kong, posted a notice on its homepage: “We are working very hard to replenish the stocks. Once items are available, we will update our web page for order placement.”
Fear is the driving force behind silver’s popularity, says Seif of Precious Metal Asia.
“We have no idea how long the coronavirus crisis is going to continue for. And even if we find a vaccine in the next few months, this crisis is probably going to be with us for another few quarters,” he said.
