The silver market stands at an interesting position at the beginning of 2020. Prices have risen since the middle of 2019, creating a fair bit of bullish sentiment on the part of market commenters and precious metals marketing groups. That bullishness is not being shared by investors who buy physical silver and gold, since they have not been buying physical metal. The rise in prices has reflected shorter term investors in futures, options, forwards, and ETFs.

Silver prices rose sharply from $15.25 at the end of June 2019 to as high as $19.75 by 4 September. While the increase in prices was hailed by silver marketing groups as the “start of the next bull market,” it is critical to understand that the rise in prices during this period was driven primarily by investors covering short positions they held in July and August on the New York Comex September silver futures contract. There was very little demand for physical silver anywhere in the world pushing prices higher at that time. Coin and bar sales to investors remained at very low levels.

It should be noted that short- and long-term investors were buying metal through silver ETFs. Silver ETF holdings did reach record highs at the end of August 2019. Between June and August investors added 122.12 million ounces of silver, mostly before prices began rising most sharply. They flipped over and became net sellers for the balance of the year, but those sales amounted to 29.6 million or 24% of what was added between June and August. For the full year, too, net additions to ETF were at 85.8 million ounces, which was the largest level of net additions since 2010.

While silver ETF investors were large net buyers of the metal during 2019 that demand was being fulfilled by reductions in unreported private investor bar stocks and was coupled with a lack of fresh demand for coins and bars.

After the September Comex contract roll was over silver prices fell, trading between $16.50 and $18.50 for most of the rest of 2019 into 2020.

While marketers were touting a new silver bull market, even a superficial examination shows that while prices rose sharply in the third quarter, and were up around 3.2% on an annual average basis in 2019, the rise in prices was contained within the broad sideways trading range that silver has maintained since falling sharply from 2012 to 2015. The rally took silver back to the high end of this range, but no further. Silver prices continue to bounce along a base that has persisted for the past five years.

That is the reality silver is facing as it moves through 2020. In 2019 investor demand for physical silver, which typically drives prices higher or lower, was at its lowest level since 2005. Even so, the price started to rise. Marketing shills say that investment demand has been strong, but they are distorting reality to try to sell silver to investors.

The reality of the silver price increase contains both bad and good information related to silver’s future price prospects. It is bad that investment demand is so low. But it is good that prices rose even in an absence of any such demand.

Investment demand is projected to remain low in 2020. The same factors that have turned investors off over the past three years, keeping prices ‘down,’ are extending into this year.

• Silver has disappointed investors.
• Many investors previously lured into buying silver by the distorted commentary of marketing groups have fled the silver market out of disenchantment at the failure of these metals to achieve the unrealistic prices promised by marketeers in the past.
• Other long-term silver investors have been passing away, and their estates have been selling off the silver.
• Many investors have given up on silver and gold, while others have re-focused on shorter term trading rather than long-term buying and holding silver.

In this environment silver prices have languished. They probably will continue to rise in 2020, but will be restrained by a lack of investment demand for physical silver in the absence of compelling economic, financial market, or political reasons to stock up on silver and gold.

CPM projects that silver prices might rise around 11.7% in 2020 on an annual average basis, to around $18.12 for the full year. Further price increases are expected later.

Mine production is projected to be flat to slightly lower, while secondary recovery from scrap may rise somewhat due to increased recycling of spent electronics and other silver-bearing products due to heightened environmental awareness, more stringent recycling laws, and somewhat higher silver prices. Fabrication demand is projected to increase perhaps 1.6% in 2020 from 2019’s level of demand.

Further price increases are expected, but beyond 2020, and only when long-term investors resume buying larger volumes of physical silver. When that happens, silver prices could rise dramatically. It may be several years before that happens. Meanwhile silver prices are expected to rise modestly.

CPM Group Silver Research Reports

Annual Silver Yearbook

Monthly Precious Metals Advisory

Silver 10-Year Projections

Information on these CPM silver research reports and other CPM Group research reports and services is available at www.cpmgroup.com, or by writing [email protected].

Or contact:

Elliot Kalson at [email protected] or

Jeffrey M. Christian at [email protected].