It is no secret to anyone that the silver market is in the midst of several changing trends as the COVID-19 pandemic turns the global economy around. And is that when the dust stabilizes, we see a bullish case for silver prices, since investment demand increases while supply restrictions persist.
Certainly silver entered 2020 with a constructive perspective. As the world economy showed signs of slowing down and debt levels continued to rise globally, central banks began to activate liquidity touches through interest rate cuts and various types of bond purchase programs. Silver recovered near $ 19 / oz in late February until the pandemic spread beyond China, causing silver to take a hit and drop to a low of $ 12 / oz in mid-March, but from so it has recovered to about $ 16 / oz.
It has been noted that on a year-to-date basis, silver lags behind gold with a 13% decrease versus a 13% gold increase.
Bullish potential in sight
Despite the fact that said metal has recovered a little, it has been noted a significant upside potential from current levels and therefore a repetition of a movement after the Global Financial Crisis (GFC) is predicted.
Industrial demand is expected to recover and supply will be under pressure. At the same time, investor demand is just beginning to manifest itself through record silver ETF inflows and increased coin and bar sales. Similar to gold bullion, investment demand is expected to increase due to unprecedented amounts of liquidity and monetary easing that are launched into the financial system in response to the current credit crisis.
It is clear that as the pandemic restricts economic activity around the world, industrial demand has clearly softened. PMIs are expected to decline further in the coming months.
Notably, the most severe contraction is reflected in the service sector, 2 rather than the manufacturing sector, as global requests to stay home wreak havoc on normal consumer activities and the labor market. In comparison, the manufacturing sector may see less impact and a shorter payback period. Mine closings are offsetting declining demand for silver manufacturing. Pandemic blockades have already suspended several critical mining operations in Mexico, Peru, Argentina and Bolivia, all of the main silver supply centers. Most of the restrictions are in force until April, however, the possibility is contemplated that this date is subject to extension, which would depend on virus containment efforts.
Source: Maria Smirnova | Sprott
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