Silver Monthly: Outperformance Likely To Continue

Silver is off to a good start to the month (+5%), after rallying strongly in July (+6%+).

Last month, silver outperformed gold for the first time in 6 months, in line with our expectations.

Silver’s outperformance was driven by a substantial surge in its monetary demand in response to friendly macro forces for the precious metals space.

SIVR: We expect the macro backdrop to remain positive in August, forecasting a trade range of $16.00-$17.50.

Investment case

Silver is off to a good start to the month (+5%) after rallying strongly by 6%+ in July, outperforming gold prices and therefore confirming our “outperformance” thesis outlined in our previous reports.

SIVR: After hitting our target of $15.90/share last month, we believe that SIVR will continue to push strongly higher this month, mainly because 1)the macro backdrop is friendly for the precious metals complex and thus conducive to stronger monetary demand, and 2)there is plenty of dry powder among speculative funds to deploy on the long side, contrary to gold.

In this context, we believe that SIVR will deliver well, both on an absolute and relative basis. We forecast a trade range of $16.00-$17.50.

8476581 15653673660499113 - Silver Monthly: Outperformance Likely To Continue

Source: Trading View, Orchid Research

About SIVR

SIVR is an ETF product using a physically backed methodology. This means that SIVR holds physical silver bars in HSBC vaults.

The physically-backed methodology prevents investors from getting punished by the contango structure of the Comex silver forward curve (forward>spot), contrary to a futures contract-based methodology.

For long-term investors, SIVR seems better than its competitor SLV, principally because its expense ratio is lower (0.30% for SIVR vs. 0.50% for SLV), which is key to make profit over the long term.

Market recap for July

Silver rebounded well for a second straight month in July (+6.3%), finally outperforming gold for the first time in six months, in line with our expectations.

While it came initially under pressure to reach a low at $14.90/ounce on July 5, it subsequently rallied strongly to push to its highest since June 2018 at $16.65/ounce on July 25.

8476581 1565367365538713 - Silver Monthly: Outperformance Likely To Continue

8476581 15653673655943992 - Silver Monthly: Outperformance Likely To Continue

Source for charts: Bloomberg, Orchid Research

The gold:silver ratio dropped from a high of 93 on July 10 to a low of 86 on July 24, before rebounding since then.

Silver’s outperformance was driven a significant surge in its monetary demand:

  • ETF investors accumulated around 1,340 tonnes of silver last month, a significant increase of 7% in silver ETF holdings, marking the largest monthly increase since November 2010, according to our estimates. This comes after an increase of 443 tonnes in June.

8476581 15653673662228138 - Silver Monthly: Outperformance Likely To Continue

  • The speculative community also contributed greatly to the silver rally – non-commercials (a proxy for speculators) lifted their net long position in Comex silver by 5,246 tonnes over June 25-July 30, equivalent to nearly 20% of annual physical consumption. This marked a second straight month of substantial net buying in favour of Comex silver.

8476581 15653673662670476 - Silver Monthly: Outperformance Likely To Continue

  • Collectors continued to accumulate silver coins at a strong pace, with American Silver Eagle coin sales amounting to 1.224 million ounces, up 18% sequentially and up 137% from a year ago.

8476581 15653673668693066 - Silver Monthly: Outperformance Likely To Continue

Source for charts: Bloomberg, Orchid Research

What do we expect for August?

The macro backdrop for the precious metals complex is likely to remain friendly in the course of August, principally because escalating trade tensions between the US and China raises downside risks to the US economic outlook, which in turn forces the Fed to deliver more easing measures (e.g., rate cuts), which the market is well aware of judging by the bond market pricing.

An easier policy stance by the Fed exerts downward pressure on the dollar and US real rates, which in turn stimulates monetary demand for precious metals.

Contrary to gold, however, the silver futures market shows plenty of dry powder among the speculative community to deploy on the long side. Although silver’s spec positioning has played some catch-up with gold’s since mid-June, speculators remain relatively too long gold vs silver, as our chart below shows.

8476581 1565367367882705 - Silver Monthly: Outperformance Likely To Continue

Source: seekingalpha.com

Social Media Auto Publish Powered By : XYZScripts.com