Futures contracts for silver from February to the end of May have dropped by over 12 percent. As a result, the price fell from around USD 16 per ounce below USD 14.50. Only the last three days have brought relief in the prices of this precious metal.
The price of silver can be observed with due attention, because along with the drop in the value of the metal, the short positions among non-commercial investors grew very significantly - according to the CFTC report. According to these data, short positions on the silver market in this category of investors is the highest since September 2018. Only in August of the same year was even greater involvement in contracts that give the opportunity to gain in a drop of the price of silver.
What is more, in the last downward movement, the price of metal fell to the levels observed in November last year. If this level were exceeded, then silver would be the cheapest since the end of 2015. From the point of view of the technical positioning of investors and fundamentals, the price of silver can be in an interesting place.
The silver deficit has increased in recent years. Last year the demand for silver was the highest in three years, by 2.5 percent higher than in 2017. At the same time, supply decreased by 2.7 percent. As a result, there was a physical deficit in the silver market in six of the last ten years, but silver prices have not reacted to this situation. On the physical demand side, we observed an increase in the production of jewelry and a 20 percent increase in demand for silver coins. All this contributed to the general increase in silver demand last year by 4 percent.
Meanwhile, the industry has stagnated growth in demand. Industrial applications and demand for electronics remained relatively stable, while a steady increase in the solar sector offset the decline in silver in photography, according to a Sprott report. On the silver supply side, the report identifies three main reasons for its decline: the weaker mine production since 2015, the decline in scrap supply and the largest fall in silver sales by governments since 2014.
Silver, like gold, may still seem like an attractive alternative in the time of more market turmoil and uncertainty. We can deal with such an environment now.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal Opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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