Half raw material, half monetary precious metal, silver finds it difficult to find its way in times of crisis. In the meantime, however, it is becoming apparent that the price of silver, like in the global financial crisis, is following the direction of gold.
Silver price up again over the year
Like all major raw materials, silver has come under massive price pressure since the end of February. From the cyclical high on February 24 to the low on March 18, the silver price fell 38 percent. Quotations have now recovered significantly and made up for 50 percent of these losses. In US dollars, the price of white precious metal is now up 2.6 percent on an annual basis, and in euro terms it is even more than 5 percent. By contrast, copper and crude oil are still massively in the loss zone in a twelve-month comparison.
Silver benefits from strong investment demand
Silver can currently use its advantage as a monetary precious metal. Investments in coins and bars as an investment have increased massively. This compensated for the collapsing demand in the manufacturing sector. Recently, this trend has even intensified, since silver is still historically cheap in relation to gold with a price ratio of 113.5. The twenty-year average is around 60. Compared to gold coins and bars, the premiums for silver coins and bars are therefore still very high.
The Silver Institute expects the supply of silver to decline by four percent in 2020 according to its current outlook. Containment measures against the corona virus have also led to the closures of the mines. In contrast, the experts expect a slightly smaller decline of only 3 percent in the demand for silver. This overall more favorable relationship between mine output and demand results primarily from the area of silver investments, which are expected to increase by 16 percent this year. The demand for physically covered investment products (ETPs) alone is expected to be 47 percent higher than in the previous year. This should also further increase the supply deficit, which should also have a positive impact on the silver price. In 2019 there was a supply deficit of 50.4 million ounces (1,567 tons) on the silver market according to the “Silver Survey 2020”.
Analogy to the financial crisis
A similar development occurred in the wake of the global financial crisis, in which investment demand ultimately shaped the direction of the silver price for years and, after a sharp slump in 2008, even led to silver outperforming gold. Since we see comparable reaction patterns of monetary and fiscal policy on the one hand and investors on the other hand in the Corona crisis, it is reasonable to conclude that the silver price can again rise in the wake of the gold price with increasing momentum.
Currently technically neutral
Meanwhile, the silver price in US dollars has reached the 50 percent Fibonacci retracement from the previous sale. Above that, however, there is still plenty of resistance, such as the moving 50- and 200-day averages at currently $ 15.64 and $ 17 / ounce, respectively. Furthermore, the price of the white precious metal still has to overcome the 61.8 percent Fibonacci retracement at $ 16.13 and the horizontal resistance at $ 16.57. Stochastics and the RSI are currently in the neutral range and do not stand in the way of a further price surge in the direction of these resistances.
Conclusion
The monetary character of the little brother of gold is slowly becoming established. In contrast to the pure industrial raw materials copper and crude oil, the silver price is clearly rising again. Due to similar general conditions on the monetary and fiscal side, it is very likely that the course of the exchange rate will repeat as in the course of the global financial crisis of 2008 ff. Apart from the empirical data situation, the already strong increase in investment demand and the epidemic-related decline in silver production are also a fundamental factor in this scenario. In view of the significantly larger economic upheavals in the current crisis and the much larger monetary and fiscal “bazookas”, the historic highs at the end of April 2011 are even at $ 49.81 per ounce or € 34.20 per Ounce realistic for the next few years.
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