Gold Digger: Physical silver demand is super strong. Why are prices so weak?

• Physical silver demand is reaching record highs
• Another deficit in 2022 means vaults stocks are running low
• Despite this, the silver price has struggled in recent months thanks to cautious outlook from instos

Our Gold Digger column wraps all the news driving ASX stocks with exposure to precious metals.

Silver has bounced back 10% over the past few days, handing it the strongest gains of the major precious metals.

Still, the price action remains disappointing for silver bulls, especially given the strength of physical demand at the moment.

Demand is reaching record highs

Metals Focus says India – a major end user — continues to import record volumes of silver bullion for jewellery and silverware.

“August deliveries alone reached 1,056t, bringing the ytd total to 6,239t,” it says.

“This already represents the third highest total on record and, even though the recent price gains may temper near-term imports, the forthcoming festive and wedding season and its associated jewellery and silverware buying mean it seems only a matter of time before India posts a new high, eclipsing 2015’s record of 7,530t.”

Retail investment in the US and Germany, the other two key silver physical investment markets has also remained high.

“Their gains continue a trend which stretches back to 2020, when the pandemic first emerged,” says Metals Focus.

Lastly, industrial demand looks set for another record high as decarbonisation (centred on PV installations and vehicle electrification) helps drive gains in excess of global GDP growth.

Another deficit in 2022 means vault stocks are running low

All this has contributed to another substantial forecasted physical supply deficit in 2022.

This is being reflected in a further decline in bullion stocks, Metals Focus says.

“For example, London vault stocks at 916Moz are at their lowest for the LBMA series, which stretches back to July 2016,” it says.

“Similarly, Comex stocks now stand at 313Moz, which is their lowest since June 2020.”

Despite this, the silver price has struggled in recent months. Why?

Negative sentiment from large investors, Metals Focus says.

“Despite the recent pullback in rate expectations and the impetus this has provided to precious metals, institutional investors still remain cautious about the outlook for the complex,” it says.

“In spite of the strength in underlying silver demand, this caution remains the biggest headwind for the silver price.”

While rate expectations have been trimmed, further tightening is still expected, both this year and going into 2023, pushing yields higher and lending further support to the dollar.

“As a result, we believe that silver prices will face renewed selling pressure towards year-end, which is likely to continue into 2023, in spite of an increasingly supportive supply/demand backdrop,” Metals Focus says.

A great week for precious metals. Will it continue?

Gold jumped to $1,729 this week, its highest since 13th September, as US rate expectations were scaled back.

This translated to some healthy gains for ASX listed miners.

Gold is entering consolidation mode as traders await non-farm payrolls (NFP), says OANDA analyst Edward Moya.

“The lead up to NFP Friday saw a mixed round of employment readings that has many bullion investors on standby,” he says.

“A hot labour market and strong wages could keep the bond market selloff going and should decide what will be gold’s next major move.

“If non-farm payrolls does not deliver any major surprises, gold may still be stuck in a trading range between $1700 and $1740 as traders will wait for next week’s inflation report.”

Winners & Losers

Here’s how ASX-listed precious metals stocks are performing:

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