A speculative “flash mob” raised metal prices to an eight-year high

After precious metals reached multi-year highs in the summer of 2021, the situation in this market is not so bright.

Silver has fallen 3 percent year to date, rising in February and then declining. But does the price action in March indicate that the silver price trend will continue to recover from the November lows?

Will silver rise in price in March? The precious metals sector came under pressure as the dollar and US bond yields rose, making them more attractive to investors. But things are better with silver than with gold. What are the prospects for this precious metal?

This article examines the dynamics of the silver market and analyst price targets.

Physical Demand and Inflation Expectations Drive Silver Volatility

Silver demand is expected to reach an eight-year high of 1.025 billion ounces in 2021, according to the Silver Institute. A rebound in the metal's industrial use - in semiconductors, solar panels, batteries, medicine and water treatment - is expected to boost demand.

Consumption in the electronics sector should account for a significant portion, with the rollout of 5G networks and devices leading to a 7% increase in global demand over 2021, to 300 million ounces. Deployment of solar panels for renewable electricity production accelerated in the second half of 2021 and is expected to remain strong into 2021.

A recovery in automotive production coupled with increasing vehicle electrification will push demand in this market to just over 60 million ounces.

Investors will likely continue to add silver to their holdings, purchasing coins and bars at six-year highs.

Silver production is expected to recover following mine closures during Covid-19 restrictions and strikes. In Mexico and Australia, new mines are to begin producing silver. While there may be a physical oversupply this year, this could be the lowest supply since 2015, when there was a shortage of silver in the market.

Questions are being raised about whether central banks underestimated the threat of inflation. If banks such as the US Federal Reserve begin raising interest rates to combat inflation, demand for precious metals, which has risen due to low interest rates last year, could fall. Higher interest rates will boost the US dollar, which typically has an inverse relationship with precious metals.

But recent sales of silver and platinum have been weaker than the gold market, said Saxo Bank analyst Ole Hansen, as the outlook for industrial demand gives them relative strength.

The gold/silver ratio, the number of ounces of silver needed to buy an ounce of gold, has been trending lower since September, falling to 65.41 in February from 68.73 in January and 71.80 in December.

The Silver Institute expects the ratio to fall from an average of 86 in 2021 to around 68 in 2021. This is a sharp decline, especially since the ratio reached an all-time daily high of 127 in March 2021.

The price of silver rose 37% from November to February, briefly topping $30 an ounce on February 1 before falling back to $26 an ounce. It traded at $28 an ounce later that month, but fell to $25 an ounce in early March.

Silver of Russia

Proven reserves of silver in Russia today are estimated at 68 thousand tons. According to the Ministry of Finance, in 2021 the total volume of silver production in our country amounted to 1.119 thousand tons.

A total of more than one hundred silver deposits are being developed in different regions of our country. In the previous year, the Magadan region took first place in terms of production volumes (over 236 tons). The Chukotka Autonomous Okrug (more than 112 tons) was in second place, and the Khabarovsk Territory was in third place (over 51 tons).

Silver mining is also carried out in the Krasnoyarsk Territory, Chita Region, Yakutia, Buryatia, in the territories of the Republic of Bashkortostan, Orenburg Region and other regions (their production volumes are not so significant).

Most of the “white gold” - about 30% - is mined in the depths of the Dukat hub (Magadan region). It includes 4 fields - Dukat, Lunnoye, Goltsovoye and Perevalnoye.

Dukat deposit

The asset's total resources are 1.4 million ounces in gold equivalent; up to 2.4 million tons of silver are processed here annually. And in 2021, Dukat produced 306 thousand ounces - again in gold equivalent.

The asset is being developed by the largest silver producer in Russia, which accounts for ¼ of the total production of “white” gold.

Another large silver asset of the Magadan region is the Juliet deposit. Precious metals are mined on its territory. The total estimated reserves and predicted resources of the deposit reach about 475 tons of silver.

Photo: eliks.su

The Ozernoye deposit in the Republic of Buryatia is also rich in silver (developed by the Ozernaya Mining Company). Thus, its total reserves amount to 157 million tons of ore, which, in addition to other metals, contains 4.5 thousand tons of silver.

A significant increase in silver production is provided by Uchalinsky GOK (Bashkortostan), Gaisky GOK (Orenburg Region), and Norilsk Nickel (Krasnoyarsk Territory). Chukotka GGK, Amur Gold, Millhouse, and Russian Platinum also contribute.

It is noteworthy that in Russia the vast majority of silver is mined by enterprises that specialize in other minerals. Thus, only 18% of the precious metal is extracted by companies whose activities are aimed exclusively at silver and/or gold.

Silver price analysis: what are the prospects?

Technical analysis of silver shows support at the January 17 low of $24 per ounce, as well as potential for growth to resistance at $28.35. If silver does return to the February 1 level of $30 per ounce, then it could break through to the January 2013 high of $32.40 per ounce.

Analysts at TD Securities are cautious about the prospects for precious metals, including silver, in the near term. In a recent note to clients, they said, "Precious metals remain victims of the Fed's reactive approach to rising Treasury yields."

They also added: “Fed Chairman Jerome Powell's latest interview confirmed that the central bank remains on autopilot: the tightening of financial conditions observed so far has not yet crossed the red line. However, real rates have risen sharply over the past few weeks as a result of higher nominal rates without a commensurate rise in inflation expectations, which is inconsistent with the Fed's dovish message."

“With massive Treasury issuance looming on the horizon, pressure on higher interest rates will in turn weigh on precious metals in the near term.”

Analysts at Heraeus are more optimistic in their latest comments, as "the price continues to trade largely in line with seasonal trends, outperforming gold's performance a year ago."

They add: “The price of gold is expected to recover. Unlike 2021, industrial use of silver could support higher prices this year, while investment demand could decline in line with gold's growing optimism about the economic recovery. Inflows into silver ETFs have slowed, but inventories currently remain at a historically high level of 1,119 million ounces.”

Analysts about.

Australian bank ANZ expects the price of silver to peak in March and then trend lower over the long term. He forecasts the silver price for March 2021 to be around 25 USD per ounce, 23.80 USD per ounce by the end of the year and about 22.50 USD per ounce by June 2022.

Dutch investment bank ABN Amro also expects silver prices to average $25 an ounce by the end of March, $23.50 an ounce by the end of December and $22.50 an ounce by the end of the second quarter of 2022.

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World silver mining centers

Back in the 19th century, all silver mining was concentrated in South America. And now this continent maintains a dominant position in the world market of “white” gold.

Poland and Peru have the largest reserves - approximately 110 thousand tons of precious metal lie on the territory of these countries. However, in terms of production volumes, Mexican mining companies are ahead of the rest.

For more than a century, Mexico has consistently occupied the top line of the silver hit parade. There are about 200 silver mines in operation in the country. The largest deposits are located in Las Tores (4.3 million tons of ore) and La Encantada (3.2 million tons of ore).

In addition, large deposits are being developed in mines in the Mexican states of Chihuahua, Hidalgo and Zacatecas. The listed assets provide approximately 20% of the total production of “white” gold in the world.

Along with Mexico, silver is actively mined in Peru. There are many small mines scattered throughout the country, which together account for 17% of all silver production in the world. The country's largest deposits are San Rafaele and the Eastern Cordillera.

Poland's richest silver deposits are located within the city of Lubin, and in China the largest deposits are developed in the Ying region - 35% of the country's total silver reserves lie there.

China is also among the richest countries in silver. Although it does not have such large reserves as, for example, Poland, it produces much more precious metal.

Chile, Australia, the USA, Russia, Bolivia, Argentina, Kazakhstan, and India are also of great importance in the silver industry.

Types of investments in silver

Compulsory medical insurance, COX, futures, shares - it is difficult for an ignorant person to understand the sea of ​​investments. Next, I will go into more detail about the most popular ways to invest in silver.

Compulsory medical insurance

An impersonal metal account with Sberbank allows you to invest in precious metals and sometimes receive small dividends (from 0.1 to 3%). The percentage is small, and most banks do not charge an interest rate at all when opening compulsory medical insurance.

Lyudmila PesterevaOur most experienced investor in goldAsk a questionThe advantages of such an investment are long-term income from the rise in price of the metal itself and ease of use.

Ingots

Serbank of Russia buys, sells and stores measured silver bars weighing from 50 to 1000 g. The safekeeping account (COX) offers not only the savings of your silver: it is possible to provide them with a loan or transfer the COX to a foreign currency or ruble account. This is safer than storing silver at home. But for storing physical silver in bullion, the bank will take its percentage - you trust the bank with your property and pay it for safety.

Investment coins

Their name speaks for itself. These coins do not have any special artistic value, but are made of precious metal, which determines their value. Their price directly depends on the exchange rate.

Sberbank sells investment coins of its own issue and foreign ones; it is the largest seller of coins on the Russian market. Their main advantage is that this investment asset is not taxed upon purchase.

Which investment method is more profitable?

In my opinion, the most profitable way is compulsory medical insurance. It is the most mobile and less expensive. And the benefit from investments is commensurate with investments in physical metal and can even exceed it, subject to stable growth of the exchange rate. However, here too there are certain risks in emergency economic situations. Therefore, everyone must determine for themselves which type of investment is more convenient and profitable.

I note that any investment in silver is only worth it in the long term. It will not be possible to make money on short-term fluctuations in the exchange rate due to the spread and tax policy.

How to open compulsory medical insurance in SB: step-by-step instructions

Opening an impersonal metal account with Sberbank is easy. For its clients, Sberbank provides the opportunity to open compulsory medical insurance in its online account. The Security Council of the Russian Federation provides such a service even to minors in the presence of parents or persons replacing them. To get started, clarify all the points you are interested in by phone. When you come to the nearest representative office, contact an available employee with a wish to open compulsory medical insurance. The following are a few simple steps:

1. State the amount for which you want to open an account.
2. Show your identification (passport).
3. Fill out the application, indicating the method of savings.
4. Read the agreement carefully and sign it.
5. The employee will give you all the information about the account you opened, the principles for calculating profits and your copy of the agreement.
6. Transfer money to compulsory medical insurance - in cash, from account to account or by card.