CHARTS: The coming critical minerals trade war is BRICS short of a load
"While a large number of countries around the world continue to talk about securing raw material supply, China is actually doing something about it."
On Wednesday, silver jumped to the highest since mid-May last year, as the metal continues to be rerated against the gold price and industrial metals demand gets a boost.
Silver futures in New York for delivery in May, the most active contract, added nearly 2% in early dealings to trade at $17.48 an ounce, before paring some of those gains by the close.
With a 26% advance year to date, silver is now outperforming gold as investors seek an alternative to gold following the yellow metal’s disappointing retreat from 13-month highs hit in March.
Gold was last trading at $1,247 an ounce pushing the much-watched silver-gold ratio to just above 71. Deutsche Bank in a recent research note, said based on historical trends of the relationship between the two metals silver could break $20 an ounce in the near term:
“In our view, a near-term catalyst to drive gold higher is not obvious, but we think the metal remains well supported. The long – term gold silver ratio (since 1973) is 57.7. The more recent range is however 85 during the depths of the global financial crisis to 35 during the period of recovery and unprecedented Quantitative Easing.
“If gold stays relatively range bound at $1,250/oz, a silver rerating to 66.6 (the average 1983 – 2003), the silver could trade up to $18.8/oz, and a silver rerating to 61.1 (the average since 2003), then silver could trade as high as $20.5/oz.”
The German investment bank is not alone in predicting a rosy outlook for the silver price. Analysts with Bank of America Merrill Lynch on Tuesday raised their 2016 average prices forecast for 2015 to $16.47 (year to date silver is averaging $15.18) saying silver’s fundamentals look the strongest in years thanks to declining mine output and rising industrial demand.
Only around 30% of global output is from primary silver mines, less than the contribution of byproduct production at zinc and lead mines where a number of mine closures are in the offing. The bulk of silver usage is also in industrial applications including alloys, electronics, photovoltaic and for the production of ethylene oxide.
Some ETF investors have been switching from gold to silver and silver and large-scale futures speculators or “managed money” investors such as hedge funds are also bullish on the outlook for the metal.
Hedge funds dramatically raised bullish bets on silver last week pushing the overall market into another record net long position.
According to the CFTC’s weekly Commitment of Traders data up to April 19 released on Friday speculators once again added to longs, building a bullish position of 378.6 million troy ounces or 11,773 tonnes, the highest level since at least 2006, when government first started to collect the data.
At the same time speculators cut their short positions which saw net longs positions grow to 10,311 tonnes, compared to a record net short of 1,610 tonnes recorded during the third quarter last year.
Source: Saxo Bank
