– 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
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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