Page 34 - Bullion World Volume 02 Issue 10 October 2022
P. 34

Bullion World | Volume 2 | Issue 10 | October 2022

            Moz                                               have an inverse relationship with silver (and gold) prices.
              600
                                                              Should the dollar post further gains from current levels,
              500                 2021  2022F
                                                              this may result in additional investor selling in the silver
              400
                                                              market.
              300
              200
                                                              We think the annual average silver price for 2022 is
              100
                                                              $21.20.
              0
                  Industrial   Investment   Jewelry   Silverware   Photography   De-Hedging
                                                              To conclude, the silver market was in a surplus over
          Silver Supply
           Moz                                                much of the 2010s, which resulted in a rise in silver
             Silver mine production is anticipated to rise in 2022.   inventories held in over-the-counter (OTC) markets and
             600
          Growth in silver output will mainly come from primary   commodity exchange vaults. Metals Focus’ data show
            Moz
                                                     US$/oz
             500
                                   2021
                                       2022F
          silver mines, massive operating mines such as Fresnillo
             1,200
                                                       35
             400                                              that silver above-ground stocks rose by around 310 Moz
          in Mexico, Rochester in the United States the expected
             1,000
             300                                       30     from 2010-2020. These accumulated inventories are
          re-start of mining at Uchucchacua in Peru. In addition,
             200 800                                          believed to have fulfilled the deficit since 2021.
          ramping large projects such as Juanicipio and Las   25
             100 600
          Chispas in Mexico will support this growth.
              0                                        20     Last year, the silver market recorded a physical deficit
              400   Industrial   Investment   Jewelry   Silverware   Photography   De-Hedging
                                                              which Metals Focus expected to grow significantly this
          Mine supply is expected to grow by 1.8% to 835.4 Moz
                                                       15
              200                                             year. Furthermore, the consultancy forecasts that the
          and recycling by 4.8% to 184.4 Moz in 2022.
               0                                       10     silver market will remain in a structural deficit for the
                 2013  2014  2015  2016  2017  2018  2019  2020  2021  2022F
                                                              foreseeable future. So the critical question is, can the
           Moz                                         US$/oz
                   Mine Production   Recycling   Hedging   Official Sector   Silver Price
                                                              silver market “supply” enough silver to fill this deficit?
             1,200                                        35

             1,000                                            Looking first at globally identified silver bullion stocks,
                                                          30
                                                              these have fallen to around 1.4bn ounces, a five-year
             800
                                                          25
                                                              low. One reason for the decline in 2022 is the strength of
             600
                                                              silver demand in India, which is on the course this year
                                                          20
                                                              to import a record level of silver bullion. Added to this are
             400
                                                          15  sizeable above-ground stocks of near-market silver. This
             200
                                                              includes ETF holdings, retail coin and bar stocks (much
              0                                           10  of which are held in the U.S. and India), and consumer
                 2013  2014  2015  2016  2017  2018  2019  2020  2021  2022F
                                                              jewellery stocks held in price-sensitive markets, such as
                  Mine Production   Recycling   Hedging   Official Sector   Silver Price
                                                              in India and elsewhere in South and East Asia. At certain
          Silver Price                                         price levels, a portion of stocks could be mobilised to
          Our consultants at Metals Focus remain cautious about   help fill the silver market deficit.
          the silver price for the rest of the year. Outside the U.S.,
          the economic outlook remains challenging. In China,   In 2021 the deficit was 49 Moz, and this year, we project
          a problematic property sector and the country’s zero   it will be significantly higher, at 146 Moz.
          COVID policy have all resulted in cuts to the GDP growth
          forecast. In Europe, the scope for higher natural gas   Make no mistake; there are great things ahead for silver
          prices during winter and its impact on industrial activity   in the future.
          makes the bloc’s economy more vulnerable. These could
          continue to undermine investor interest in industrial
          commodities, affecting silver.
          This year’s challenge for silver prices is monetary
          tightening adopted by central banks -- the U.S Fed, in
          particular -- to rein in inflation. This activity has led to a
          surge in the dollar index and bond yields, which tend to





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