The silver price hasunderperformed gold so far in 2017, and was up less than 10 percent year-to-date at the end of Q3.
The white metal has put on a mixed performance since last year.In 2016, silver fell from over $20 per ounce in September to an eight-month low of $15.63 in December. It recovered to over $18 at the start of 2017, buthit a 15-month low of $15.19 in Julybefore rallying backtoabout $18 in early September. As of 11:00 a.m. PST on Wednesday (October 4), silver was at $16.63.
Silver is trending so far this quarter at $16.88, and looks like it’s going to come in just under $17 for all of Q3. For Q4, we still have a fairly lackluster level average of around $17.25, so little improved from where we are now, Bart Melek, head of commodity strategy at TD Securities, said via phone.
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Melek said every time there is a bullish gold environment, silver tends to outperform; however, that hasn’t happened yetthis year.He explained, the mining side of the equation isn’t particularly robust. I think the big problem here is that the market continues to be concerned about long-term demand, and there hasn’t really been that much investor appetite in the metal.
Silver price update: Demand
Silver demand has been hurt by a drop in coin and barpurchases this year. According to a recent report from Metals Focus, that’s partially due to Indian bullion imports. In Q4 2016 they were down 60 percent year-on-year, and were down 16 percent year-on-year in January and February of this year.
There’s been a crackdown by the government on unaccounted money, and it’s no great secret that a lot of these consumers used to put their unaccounted money, or a chunk of it, into silver. It’s now more difficult [to do that], Metals Focus Director Philip Newman told the Investing News Network.
Silver bar and coin demand is expected to recover next year but, against a low base, with the global total still the lowest this decade, reflecting ongoing weakness in India and the US.
Most recently, India’s silver imports have increasedahead of the Diwali festival. The Gujarat State Export Corporation reportedthat silver imports at Sardar Vallabhbhai Patel International Airport increased from 0.25 tonnes in September 2016 to 25.56 tonnes in September 2017.
Only modest gains in jewelry and silverware demand are expected next year because projected price rises will cause damage in countries such as India.
Meanwhile, industrial demand for silver is expected to grow by 2 percent next year, an all-time high,due to demand from the solar and automotive sectors. The silver market is expected to remain in a surplus for the third consecutive year in 2018, with oversupplyreaching about 70 million ounces.
Silver price update: Supply
Metals Focusis calling for a year-on-year fall in mine output this year, and notes that resource nationalism, for example in Guatemala, has been in the news. Guatemala’s Supreme Court suspended the operating license for Tahoe Resources’ (TSX:THO,NYSE:TAHO) Escobal mine earlier this year, halting operationsbetween July and September.
Total silver supplyfor the full 2017 year is expected to be 1,024 million ounces, which includes mine production and recycling, according to the firm.
Tahoe Resources’ Escobal mine is the fourth-largest silver mine in the world. Other precious metals companies that Metals Focus says gainover 30 percent of their revenue from silver include:
- Fresnillo (LSE:FRES)
- Polymetal International (LSE:POLY)
- Buenaventura (NYSE:BVN)
- Pan American Silver (TSX:PAAS,NASDAQ:PAAS)
- Hecla Mining (NYSE:HL)
- Hochschild Mining (LSE:HOC)
- Coeur Mining (NYSE:CDE)
It’s worth notingthat these producers accounted for less than 10 percent of silve