Silver gets a late leg up but investors still hold at bay

Silver underperformed gold for the most part of 2019 as global economic uncertainty pushed gold higher but kept the pressure on industrial metals.

Ravindra Rao

Silver in the international market has surged above $17.65/oz level for the first time since early November. Silver edged up amid firmness in the gold price and improving outlook for industrial metals; however, weaker investor buying remains a cause of concern.

Silver underperformed gold for the most part of 2019 as global economic uncertainty pushed gold higher but kept the pressure on industrial metals. However, as the year comes to a close we are seeing some rigorous buying interest.

Gold has also surged to the highest level since November supported by the US Fed’s stance to keep interest rate unchanged in 2020. Industrial metals have gained lately from US-China efforts to resolve their trade issues and on some better than the expected Chinese economy. The general strength in palladium and platinum has also underpinned silver prices. Palladium price surged to record high level earlier this month on concerns about tighter supply.

The silver price has risen by nearly 6 percent in the last two weeks. Aggregate Open interest for COMEX Silver futures rose to 217156 contracts on Monday, highest since Nov.22. The rise in price along with a surge in open positions indicates buildup in long positions. This reflects a pickup in bullish sentiment in the market.

Speculators have also raised their net long position. As per US CFTC data, non-commercial traders for silver futures raised net long positions by 12.4 percent to 45781 contracts for the week ended December 17. This was the first rise in a net long position in three weeks.

So while there is a pickup in bullish sentiment for silver, the question is whether it will sustain or not. The rally has come at a time when trade volumes are usually low in global markets due to year-end closing and Christmas and New year holidays. Lower trade volumes tend to exacerbate price movement.

Also, there is no fresh participation by ETF investors who have been the major force behind silver’s gain this year. Silver holdings with iShares ETF dropped to 11316.41 tonnes on Monday, the lowest since August. The general weaker outlook for the manufacturing sector also indicates that industrial demand is not likely to improve significantly in the near term.

On the whole, after days of consolidation, silver has broken past the key resistance of $17.5/oz level paving way for further gains till $18/oz however the momentum may not continue for long unless we see fresh investor inflows.

(The author is Head- Commodity Research at Kotak Securities)

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