Silver’s plunge is nearing completion Bloomberg analyst

Silver’s 10% sharp fallin seconds remains mystery

Plunge despite anemic global supply and strong demand

Total silver supply declined in ’16 lowest level since ’13

Silver mine production down in ’16, first time in 14 years

Total silver supply decreased by 32.6 MlnOzs in 2016

Supply deficit in 2016-fourth consecutive year (see table)

Falling knife caution but opportunity presenting itself

Silver has had a torrid time of late with a the flash crash seeing a massive $450 million silver futures sell order pushing silver 10% lower in seconds andfollow through selling later Friday after the better than expected U.S. jobs number.

The electronic futures silver and gold exchanges continue to ‘wag the dog’ of theglobal silver and gold markets for now.

If one had just looked at the short-term trends of silver at the end of 2016, you would have thought we would be mad to predict that 2017 would be a bearish year.

At the time it appeared as though silver was in a new bull market and in the early months of 2017 the price climbed by around 9%.But since April silver has handed back its gains and some and it is now down 3% for the year.

This has been counter intuitive togold and silver investors alike who are looking at an economy filled with macroeconomic, geopolitical and indeed monetary uncertainty and central banks who appearincreasingly fallible as the months go on.

Some were left wondering how much lower silver could go when last Wednesday it fell through the important $16 level for the first time in 2017.

In addition, the silver price weakness was given an extra push two days later when it collapsed by 10% in a matter of seconds. The reasons why this happened are still unknown, if it was a mistake then no-one is owning up to it and if it was a result of a desire to shift off $450 million worth of silver futures in minute then we will never know.

But their might be a (silver-powered) light at the end of the tunnel. Some silver market and industry experts are forecasting the silver plunge to be coming to an end.

A justified plunge ended by global yields

Bloomberg’s Michael Cudmore believes that the plunge in silver was justified

‘Gold and silver have a particularly strong correlation with real rates since the metals provide no yield, and hence demand is inversely related to the opportunity cost of speculation.

An environment in which global bond yields are rising in the absence of significant inflationary pressures is about as bad as it gets for speculative precious metals, so the move makes sense.’

But, Cudmore argues, it won’t stay like this forever.

‘If the rise in global yields persists, then severe spillover effects in other asset markets couldprompt a bid for precious metal havens again. So we are approaching the point where both higher yields and lower yields have the potential to boost the asset class.’

New diversified industrial demand

But for many investors, talk of very short term yield hikes are about as handy as a wet finger in the air. Is the picture still as bullish when you look at the basic fundamentals of physical silver demand and silver supply?

According to the Silver Institute around 55% of all silver consumed is for industrial use. The remainder is taken up by jewellery, coin, bullion and silverware. As a result of this dual demand, one can understandably get distracted by figures that suggest investment demand is down and therefore the price outlook is bearish.

But, on the other side of the demand coin things are not only looking positive but the face of industrial demand for silver is also changing. This is an indicator of a market which is able to be agile in the face of changing times. Something which cannot be said for other markets so involved in technology.

Bearish commentators like to refer to the falling in use for silver in the field of photography, once a big source of demand. However, the Silver Institute remind us that this has been the case for many years and is unlikely to be impacting upon demand figures now,

‘Photographic demand fell by just 3 percent in 2016 to 45.2Moz, representing the lowest percentage decline since 2004, potentially indicating that the bulk of structural change in the photography market is over and that current fabrication volumes may be largely sustainable.’

In the meantime, bears would be wise to remember that there are several other applications for industrial silver and they are growing.

In the 2017 silver survey data showed new highs were recorded for silver’s growing use in the photovoltaic (solar energy) and ethylene oxide (essential ingredients in plastics) sectors. These are two major and growing sectors for industrial silver.

By way of example, photovoltaic demand climbed by another 34% in 2016, the strongest growth in six years thanks to a 49% increase in demand for solar panels. In all it appears that the physical demand for industrial use silver is still at a strong level.

Declining supply?

As r