- Silver ETPs; a negative swing of 5,306t so far this year against 2021
- That is equivalent to eight weeks’ global demand
- Market is in surplus overall
- The minutes from the July FOMC meeting are due this week
While silver’s rally in the first week of August was twice that of gold, suggesting that sentiment in the sector overall was becoming more bullish, the move was short-lived and both metals have given back their gains. Gold tried to clear the psychologically important $1,800 level but failed on five consecutive days and as we write it has dipped below the 50-day moving average, which had previously been offering support.
The key focus of the markets’ attention last week in the United States was the inflation numbers; the Consumer Price Index was released on Wednesday and the Producer Price Index the following day. The CPI numbers were 20 basis points below expectation, with the headline number unchanged from the previous month and the core number (i.e., excluding food and energy) up 30 basis points. Within these numbers the “shelter” component, which comprises 32% of the CPI in the States, was up 0.5% month-on-month, a smaller increase than in May and June, while the year-on-year increase was 8.5%. New cars and new trucks prices were up 80 and 60 basis points month on month respectively, and up 11.7% and 10.1% respectively over twelve months. For much of the previous twelve months, used cars and trucks prices were rising faster than their new counterparts and absolute prices were higher also; this trend is now reversing as the auto sector starts to recover, taking advantage of the malaise in the electronics sector, which is allowing a better flow of semiconductor chips. Meanwhile car and truck rental were down 11.9% year-on-year, while airline fares were up 28% year-on-year and gasoline was up 44%.
As far as the precious metals are concerned this is more relevant to platinum palladium and rhodium than gold and silver, but the continued electrification of the vehicle fleet is beneficial to silver and will help to underpin that market. That said, our estimate for the silver market balance this year is for a surplus equivalent to ten weeks’ demand before any physical investment activity is taken into account. Last year the market threw off a surplus equivalent to over 14 weeks’ global fabrication demand, but this was more than absorbed by investment activity, which amounted to almost 8,700 tonnes, and Exchange Traded Products absorbed a further 2,019t. So far this year the silver ETPs have shed 3,288t, so that is effectively a 5,306t swing, equivalent to eight weeks’ global demand. Assuming no further activity in the ETPs this year, that would put the market, into a small surplus of roughly one week’s global silver demand
So far this year physical investment in silver appears to have remained strong in the United States and Mints around the world remain on allocation, coin premia remain high and silver investment demand in India, which collapsed last year, is very buoyant, benefiting from the release of pent-up demand despite the monsoon season (the same cannot be said about gold) and silver’s comparative price weakness.
That said, even if physical investment (apart from ETPs) remained at the same level as last year during 2022, the market would still be in surplus for the year.
Real 2-year U.S. yield currently at minus 3%
Meanwhile, despite the fact that gold appears to be less obsessed with interest rate cycles than previously, since it is now a given that there is plenty more to come from that sector, the Minutes of the FOMC July meeting will make for interesting reading mid-week as we look to see any changes in nuances. The market is mow more or less expecting a 75-basis point hike in the September meeting and the dot plot will be very instructive.