The silver market has registered a physical deficit in six out of the past ten years, yet this has failed to move silver prices higher. This signals to us that the silver price has fallen victim of to silver “paper” market trading and weakness in investment demand. (The paper silver market most often refers to the silver futures market, which gives exposure to silver’s price without providing ownership of the physical metal.)
Figure 1: Silver Physical Surplus/Deficit
(2009-2018; Million Ounces)
We strongly believe that both gold and silver are valuable hedging tools in times of uncertainty and volatility. When the S&P 500 plummeted 20% in the three months to Christmas Eve of last year, silver gained about 12% from its lows. At ~$15, the silver price is close to levels not seen since 2015 and we see little downside risk at this level. Any future economic hiccups and market sell-offs are likely to encourage investors to look for safe havens and alternatives to traditional financial assets.
Figure 4. Silver Use in 2018