Is This Precious Metal Losing The Charm – Silver?

Is This Precious Metal Losing The Charm – Silver?

Silver prices took a steep fall, with silver spot (XAG) falling from $16.634, which marked a day’s high of 27th February 2019, to mark a day’s low of $15.149 on 1st March 2019 amid rising dollar index over the building optimism among market participants in relation to the ongoing U.S-China trade war.

The U.S. President Donal Trump tweeted that, he has asked the Chinese counterpart to drop tariff on U.S. Agriculture products based on the fact that the trade talks are moving nicely, and the U.S. President was quick to mention that he did not increase their second traunch of tariffs to 25% on Chinese goods, which was due on 1st March 2019.

The statement over the building relationship among the two major economies provided an impetus to the global market, and in turn, multiple stock exchanges surged, increasing the return on stocks, which in turn decreased the silver lustre as a non-interest-bearing asset and depreciated the silver prices.

Over the building optimism in the U.S-China trade war, the U.S-10-year-bond yield or Yield-to-Maturity (market discount rate) also surged, decreasing the prices of bonds in the market, which in turn also hampered the bullion prices and both silver and gold marked a decline. The U.S-10-year bond yield surged from 2.686% (which marked a closing of 27th February 2019) to 2.759% (closing of 1st March 2019).

The increase in yield-to-maturity or market discount rate marked a building optimism among the market participants and in turn exerted pressure on silver prices as it is also an instrument used in investing activities due to its price appreciation ability in the time of decreasing market returns from other asset classes.

Apart from the impact on the macroeconomic level, to completely gauge the direction of the price movement in silver, investors are addressing the microeconomic information of silver as well.

Supply and Demand Fundamentals:

As per the available data, till the year ended 2017, the silver supply line marked a consecutive decline from 1,050.0 million ounces in 2014, 1,044.0 million ounces in 2015, 1,009.4 million ounces in 2016 and 991.6 million ounces in 2017.

The physical demand rose from 1,041.9 million ounces in 2016 to 1,017.6 million ounces in 2017, while the market experienced a production decline. The highest demand for the silver came from the silverware and industrial fabrication sectors, with silverware demand surging from 52.4 million ounces to 58.4 million ounces and industrial fabrication demand surging from 576.8 million ounces to 599.0 million ounces.

The highest demand for silver in industrial fabrication sector came from the electrical and electronic and Photovoltaic segments, with demand for electrical and electronic segment surging from 233.9 million ounces in 2016 to 242.9 million ounces in in 2017 and 79.3 million ounces to 94.1 million ounces over the same time period for Photovoltaic segment.

The high demand from both the segment was in line with the development of renewable energy projects across the globe, and rapid electrification process in the transportation industry.

To completely reckon the silver trend over the long run, the consideration of these fundamentals along with the macroeconomic status quo is essential, and investors are keeping a Hawk eye on the developments on these sectors and segments to fathom the complete picture.


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