The following is an edited excerpt from the “Global Silver Investment” report prepared by Metals Focus for The Silver Institute. Visit www.silverinstitute.org for complimentary access to the full report.
Investor sentiment has strengthened for silver (as well as the wider precious metals complex), in contrast with recent years’ activity, when many institutional investors had been skeptical towards the metal. This reflects silver’s underperformance to gold over a near-uninterrupted, eight-year period (the gold-to-silver ratio rose from 30.5 in April 2011 to a multi-decade high of 93.5 in July 2019). Investors also saw prices surpass US$50, and the rapid retreat when so many were caught out. That such dramatic events are possible reflects the modest size of global silver investment, where relatively small inflows or liquidations can disproportionately affect the market, leading to heightened price volatility, such as that seen less than a decade ago. Another challenge facing potential silver investors is the market’s depth of liquidity, including the availability of counterparts, to execute significant trades.
A comparison between the size of silver and gold investment across asset classes brings this into focus. Looking first at investor exposure on Comex, as of the end of July, the value of net long-managed money positions in silver stood at US$5.2 billion (equivalent to 312.8 million oz., or 9,729 tonnes) compared with US$26.6 billion for gold (18.6 million oz., or 578 tonnes), some five times higher. Hypothetically (and assuming all else remains equal), a relatively modest 5% rotation out of gold in favour of silver would see positioning in the latter rise a dramatic 25%. While such a move would see the gold price weaken, it could have a massive impact on silver.
When it comes to exchange-traded products and retail investment, the difference between gold and silver investment demand is more pronounced. For the former, total silver holdings at the end of July amounted to US$11.5 billion (706.2 million oz., or 21,964 tonnes) against US$109 billion (77.2 million oz., or 2,400 tonnes) for gold — nine times greater in value. However, this pales against the difference for silver and gold physical investment, with the latter 17 times greater than for silver. The value of global silver coin and bar demand in 2018 stood at US$2.6 billion (165.7 million oz., or 5,155 tonnes), compared with US$44 billion (34.7 million oz., or 1,080 tonnes) for gold.
Given that the macroeconomic environment is becoming more supportive of higher gold prices, the modest value of investor exposure towards silver suggests there is room for growth. That said, each area of silver investment may respond in different ways, which is further explored in Metals Focus’ Global Silver Investment report prepared for The Silver Institute.
silver, that is good,but sooner or later the cheatstreetbanksterswillhammer down the price along with gold