Silver prices in the international markets have had a volatile ride in the first quarter of 2021 with a high of $30.03 per ounce and a low of $23.75 per ounce. On the MCX, silver futures traded at a high of Rs 74,426 per kg and a low of Rs 63,814 per kg.
Stimulus measures by the Biden government to lift the US economy by creating jobs, many more Americans getting vaccinated, rising US treasury yields in the US, a strong dollar and strong global equities are the push factors for the correction in silver prices so far in 2021.
Optimism in the US economy
The US added 1.6 million jobs in the first quarter of 2021, and the most jobs in seven months in March, making it the start of what could be the strongest economic performance in nearly four decades. On the contrary, the jobs deficit is still huge and more than four million Americans have been unemployed for over six months.
Q1 gross domestic product estimates are as high as an annualized rate of 10.0 per cent. Growth this year could top 7 per cent, which would be the fastest rate since 1984. The US economy contracted 3.5 per cent in 2020, its worst performance in 74 years. Moreover, the Federal Reserve has signaled it would maintain its ultra-easy monetary policy stance for a while to allow complete healing.
After a good performance in 2020, hedge funds are losing their bets on silver as can be seen in the following chart:
The net longs in silver stood at 21,236 contracts as of March 30, 2021 as against 48,680 December 21, 2020 . The correction in
silver prices in the first quarter led hedge funds to reduce their exposure in the grey metal.
The brighter side of the grey metal
Led by industrial use and physical investment, global silver demand is projected to rise to a six-year high of 1.025 billion ounces in 2021, according to an analysis by The Silver Institute, published on February 10, 2021. Physical investment, which covers silver bullion coin and bar purchases, is expected to achieve a six-year high of 257 million ounces (Moz) in 2021, as investors continue to add the metal to their investment holdings.
Already, in 2021, holdings in exchange-traded products reached a record level of 1.18 billion ounces on February 3. Industrial demand is projected to post a four-year high of 510 Moz in 2021, a 9 per cent increase over 2020 figures. Global silver jewelry demand is forecast to rebound to 174 Moz but remain below pre-COVID levels. Silver’s use in the automotive market should also rebound strongly in 2021, to just over 60 Moz, benefiting from the growing electrification of vehicles, according to The Silver Institute.
What’s in store for silver now?
Volatility in the metal is a good recipe for traders to take the benefit of price moves, and the momentum suggests that the Rs 70,000 per kg level looks like a good possibility on the MCX futures.
In the international markets, $27 looks very much possible from a monthly perspective. Increasing demand-side focus from the automotive sector, increasing Covid infections globally and the central banks’ liquidity push are a clear mixture for silver prices to rise. We remain bullish on silver and ‘buy on dips’ has to be the clear strategy in the grey metal.
(Prathamesh Mallya is AVP-Research Non-Agri Commodities and Currencies, Angel Broking)