The past six months have been weak for most precious metals, with the aggregated S&P GSCI Precious Metal index losing a fifth of its value. Silver has been even softer, though, plummeting by 29 per cent through the period.
For Mike McGlone, research director at ETF Securities, this represents ‘a potentially attractive entry level’ given that the metal ‘may have corrected too far and is poised for future growth’.
McGlone’s case rests on demand for silver picking up and the broader flight from precious metals having ended.
On the demand side, McGlone noted that around half of the world’s silver output is put to industrial use, given its properties as a conductor of electricity; in contrast, industrial applications account for only a tenth of gold production.
As the global economic recovery takes hold, therefore, demand for silver should increase. McGlone added that ‘new interest from the solar industry also indicates the potential for upward price pressure’.
Further support for silver was coming from the US Mint, McGlone observed. The Mint has already sold almost as many silver coins so far this year as it did in all of 2012, and McGlone predicted that for the full year it would churn out 50 million ounces of silver – far ahead of the recent peak of 40 million ounces in 2011.
The second tenet of McGlone’s argument is that the slump in gold prices has already reached its nadir. Having hit $1,200 an ounce in June, marking a drop of a third over the past year, gold has now hovered around $1,300 for a month.
‘Gold has been the key reason holding silver prices down,’ McGlone explained, with movements in the two metals’ prices 90 per cent correlated.
‘Now that gold appears to have bottomed,’ he reckoned, ‘the downward momentum for the silver price appears to have been removed.’
McGlone concluded: ‘Silver appears ripe for a recovery.’