– Silver bullion remains good value on positive supply and demand factors

– Industrial demand set to continue to climb from 2017, into 2018 and beyond

– Speculators are bearish on silver as net short positions in silver futures reach record

– Investment demand sees silver ETF holdings at eight-month high of 665.4 million ozs

– 2017 saw fifth consecutive annual physical deficit in scrap silver, of 26 moz

– Global silver mine production fell 4% last year, 2nd consecutive year of decline

– Fundamentals and speculative positions suggest silver may soon see strong gains

Editor: Mark O’Byrne

Silver poor mans metal


It’s been tough going for many silver bullion investors who look back fondly on silver’s surge to nearly $50/oz in 2011. But things are set for a turnaround judging by recent COT reports, investment demand as seen in ETF holdings and non-investment metrics such as strong industrial demand and falling mine supply.

Earlier this month you could be forgiven for thinking that silver’s future certainly contained no shiny lining of any kind. There were a record 39,604 contracts (equivalent to five-and-a-half metric tons) of net short positions in silver futures held by money managers. Some would see this as bearish but the record shows that such positioning is generally bullish from a contrarian perspective and frequently presages sharp reversals higher in the price of silver.


On the arguably more important long term side of the market is investment demand. Total silver ETF holdings reached an eight-month high of 665.4 million troy ounces last week. Investors increasingly like the medium and long term fundamentals of the silver market. Not so bearish after all.

On the all important physical, non-investment part of the silver market, life is looking even shinier. Industrial demand currently makes up about 60% of the silver market and is set to climb. A recent report from Thomson Reuters’ GFMS and the Silver Institute has found that demand for silver in the non-investment space climbed in 2017 and is expected to continue to do so this year and beyond.

These figures – speculative bets on a lower silver price on one hand but strong investment and industrial demand on another – look counter intuitive to the uninformed observer.

They likely show that silver remains undervalued versus gold and indeed versus very overvalued stock, bond and indeed most property markets.

The Bearish Managed Money Positions Are A Good Sign 

We look at money managed positions in silver futures as they serve as a good proxy for for investor and speculative activity on the COMEX. Currently (and pretty much since August 2017) speculators are more short than they are long, with a lot of cash betting that silver is set for further fall in price.

As of last week the managed money positions made it 9 consecutive weeks of bearish sentiment. According to several market analysts the metal is now “oversold” and “vulnerable” to a hop up the price scale. Interestingly, despite the air of negativity, silver has remained resilient – falling by just 2% in the last two months or so.

We saw a similar situation last year, despite a wave of bearish speculators silver bullion managed to finish the year up 6%.


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Some analysts believe the current negativity surrounding silver could signal a turnaround. Bloomberg’s David Fickling wrote an astute article which is well worth a read on Monday:

‘As the stunning reversal of aluminum’s three-month decline last week demonstrated, commodity markets can go wild when bearish investors are caught short.’

SocGen’s own analysts are inclined to agree, when studying last week’s CFTC data they concluded that the industrial precious metal is now “oversold [and] generally vulnerable to short-covering.”

It’s clear that the weakness in the price is coming from negative speculation rather than the fundamentals – all of which point to a bullish future.

Industrial demand says industrious 


The newly released 2017 Silver Survey makes for some interesting reading and is something that should perhaps be handed over to all those bearish money managers. Whilst investment demand in the form of silver bullion coins and bars did fall last year (mainly thanks to lower demand in the US and Canada) all other physical metrics point to an extremely bullish market.

Industrial demand, jewellery demand and supply restrictions all point to a much tighter market than the likes of COT and even some ETF holding reports would have you believe.

Thanks to photovoltaic growth (up 19%) industrial demand  grew for the first time last year, since 2013. Whilst jewellery and silverware demand increased by 2% and 12% respectively.

These numbers mean little if you don’t know the juicy numbers – the huge tightening in supply.

Global mine production fell by more than 4% last year, this was the second annual decline. As with any industrial market, the industry doesn’t just rely on fresh metal from the ground – scrap is a major factor. But this is in an even worse state, falling to 138.1 Moz in 2017 – its sixth successive annual decline.


Silver Institute: Silver Will Outperfo