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1、MarketTrendReportFactorsthatDeterminetheSilverPriceFebruary,2024ConductedBy:PreciousMetalsInsights 1TableofContents1.IntroducDon3.2.NominalandRealPrices6.3.Supply/DemandFactors7.3.1.MineProducDon7.3.2.ScrapRecycling8.3.3.FabricaDonDemand9.3.4.DeficitsandSurpluses10.3.5.SupplyfromBullionStocks12.1.In

2、vestment13.2.OfficialSector15.4.ExogenousFactors17.1.GoldPrice17.2.CopperPrice19.3.CommodityPrices20.4.ExchangeRates21.5.InflaDon22.6.InterestRates23.7.StockPrices25.21.IntroducDonOverthelasttwodecades,thedailysilverprice(basistheLondonfix)hasrisenfromalowof$5.50in2004toahighof$48.70in2011beforeslid

3、ingtoabearmarkettroughfiveyearslaterof$13.58.Sincethen,withtheexcepDonofabriefCOVID-relatedspikedownwards,silverhastendedtorecoverstronglyoverthelastthreeyears,withseveralralliesdrivingthepriceintotheupper$20s.ThisMarketTrendReportseekstoidenDfyandexplainthefactorsbehindtheriseandfallinthesilverpric

4、eoverrecentdecades.First,itassessessilverssupply/demandfundamentalstoascertaintowhatextentchangesinthesemayhaveaffectedtheprice.Second,itlooksatvariousexogenousfactorsthatcouldhavebeenresponsibleformovementsinthesilverprice.AnanalysisofthehistoricaldataandcontemporaryreportsofwhatmarketparDcipantsan

5、dobserversbelievedwasattheDmedrivingpricesleadstosomekeyconclusionsonsilverpricedeterminaDon.ThisReportconcludesthatthereisnomagicformulaorcombinaDonoffactorsthatconsistentlyandaccuratelyexplainseithertheleveloforchangeinthesilverprice.WhilethesilverpriceisnotarandomwalkneitherisitsfuturepathenDrely

6、predictablebasedonpasttrends.ThisobservaDonparDcularlyappliestoexogenousfactors,someofwhichmightbethoughttohaveastableandenDrelypredictableimpactonthepriceofsilver.InpracDce,whileoneoracombinaDonoftheseexogenousfactors,suchasexchangeratesorinterestrates,mayforaperiodbeadominantdriver,evenintheshortr

7、untherewillbeDmeswhentheyarenotandanotherprice-driver(eveniftemporarily)takescenterstage.However,itwouldbemisleadingtoconcludefromtheabovethatitisimpossibletoidenDfyandsortbydegreeofimportancethoserelaDonshipsthatwillmostlikelyhavethestrongestinfluenceonthepriceofsilver.(Indeed,thatisonetheprincipal

8、objecDvesofthisReport.)And,whileoneshouldnotconfusecorrelaDonwithcausality,thestaDsDcaldatapointsoutclearlythosefactorsthathaveprovedtobethemostrelevantforsilverpricesoverthelongrun.3BeforeaddressingthekeyquesDonofwhichofthesupply/demandelementsandexogenousdriverscoveredinthisReportaremostinfluenDal

9、forsilverprices,itisworthcommenDngonwhythesilverpriceisdeterminedbymulDplefactorsthatvaryintheirinfluencetemporallyandintheirintensity.Thisstateofaffairsistonosmallextentbecausesilverisbothapreciousmetalandanindustrialcommodity.MuchoftheDme,itisthosefactorsthattypicallydriveinvestorbehavior,suchasth

10、elevelofthedollarorinterestrates,whicharetothefore.But,atotherDmes,silvermovesmoreinlinewithchangesinorexpectaDonsforthoseeconomicindicatorsthatareespeciallyrelevanttocommodiDes,suchasindustrialproducDonandGDPgrowth.IllustraDveofsilversdualnatureisthemetalshighcorrelaDonwithgoldbutalso,frequently,wi

11、thcopperandthebroadercommodiDescomplex.Basicsupply/demandanalysiswouldtoalargeextentexplainpricesforcommodiDesthathavelifleornostocksandlimitedinvestor/speculatorinterest.Silver,ofcourse,doesnotfitsuchasimpleprofile.Nevertheless,itwouldbewrongtodismisstheinfluenceonthepriceofmajorchangesinsilvermine

12、producDonorfabricaDondemand,parDcularlyoverthelongterm.Forexample,thecumulaDvegrowthinmineproducDonofover150millionounces(Moz)(34%)between1994and2001,increasedsupplysufficientlytobeafactorinkeepingpricesdepressedinthelate1990sandearly2000s.Onthedemandside,thecollapseinsilveruseinphotography(agrosslo

13、ssof200Mozfromitspeakin1999to2022)wouldhavebeendevastaDngforthepricehaditnotbeenoffsetby,firstly,ahugegrowthinindustrialdemandinthe2000sand,secondly,sincetheendofthatdecade,asurgeinpurchasesofbarsandcoinsbyinvestors.Asthereferenceabovetoinvestmentimplies,theimpactofsupplyanddemandfactorsonthepriceis

14、notjustrestrictedtominesupplyormanufacturersdemand.Inlargemeasureduetosilverbeingapreciousmetalofhighunitvalueandwithamonetarylegacy,thereareabundantabove-groundstocksinnear-marketform,bothfabricatedproductsandbullion.Thesecancomebacktothemarketinresponsetopriceandothersignalsand,inturn,impactthedir

15、ecDoninandlevelofthesilverprice.Above-groundstocksinallformsareahighmulDpleofannualsupply/demandforsilver.Overthelastthreedecades,cumulaDvefabricaDondemand(excludingcoins)hasamountedtonearly24billionounces.MuchofthissilverhasnotbeenrecycledandtheoreDcallyremainsavailabletothemarket.InpracDce,though,

16、agoodpartofitwouldhaveeitherbeenlost,oritisimpracDcaland/oruneconomicatvirtuallyanysilverpricetoberecycled.Yet,whiletheabove-groundstockofsilverproductsisnotnearlyasliquidasisthecaseforgold(duetothedominanceofhigh-valuejewelryinitscase),thedatashowthatoccasionallyariseorfallinscrapsupplyhasbeenlarge

17、enoughtohavehadsomeimpactonprices.Forexample,intheabsenceoftheover60Mozdropinscrapsupplybetween2012and2015,theslumpinthesilverpriceoverthesameperiodwouldsurelyhavebeenevenworse.Whileitcanbeconcludedthattherecyclingoftheabove-groundstockoffabricatedproductsonlyrarelyimpactstheprice,thisobservaDonisno

18、ttruefortheabove-groundstockofbullion,linkedasitistochangesindemandfrominvestorsandgovernments.Duringthe1970sagenerallyrisingsilverpriceresultedinadepleDonofbullioninventoriesthathadbeenaccumulatedinthe1960s.In1979,thesurgeinthepricepromptedbothprofittakingfromexisDngholdersandfreshbuyingfromnewinve

19、storsbutwithanetincreaseinbullionstocks.1980andtherestofthatdecadewascharacterizedbyasizeableincreaseininvestor-heldinventories,notwithstandingthetrenddowninthesilverprice.The1990s,incontrast,sawadepleDonofthesebullionstocksasinvestorsfinallygaveuphopeofareturntoasilverbullmarketorthoseinheriDngthes

20、eposiDonsliquidatedthemtoinvestinotherassetsortofinanceconsumpDon.Itissurelythecasethattheincreaseinbullionstockscushionedsilversfallduringthe1980sandexacerbateditsbearmarketinthe1990s.4Since2008,bullionstockshaveincreasedsubstanDallyasinvestorshaveyear-aker-yearbeennetbuyersofsilver.(Governmentsale

21、s,whichweresubstanDalover1999-2006,havebeenDnyoverthelast15years.)Thesteadybuild-upininventorieshasoccurredduringaperiodwhensilverpriceshave,muchoftheDme,beenhighlyvolaDle.Investmentdemandhas,intheaggregate,moppedupalltheavailablesurplussilverinthemarket.Occasionally,suchasin2015,bargainhunDng,notab

22、lyinIndia,hasdominatedinvestmentandtherelatedincreaseinimpliedbullionstocks.Thisphenomenonhelpedestablishafloorforthepricewhensilverwasunderpressure.AtotherDmes,stock-buildinghasbeenrelatedmoretoinvestmentdrivenbyrisingsilverprices,mostnotablyin2020.GoldisofparDcularrelevanceamongtheamongtheexogenou

23、sfactorsimpacDngsilverthatthisReportcovers.WhilethevastvariaDoninthegold:silverraDocouldindicatealooserelaDonship,theoppositeisthecase.ThepricecorrelaDonbetweenthesetwometalsishistoricallyveryhigh.However,thisdoesnotmeantheycannotdivergeoverextendedperiods.Silverislesscorrelatedthangoldtoeconomicand

24、financialfactorsthatdrivefinancialassetprices.Itcorrelatesmorewithgoldwiththosefactorsthattypicallydrivecommodityprices.And,whilesilveristhemorevolaDleofthepairwithtypicallyamuchlargertradingrange,goldandsilverusuallytravelinthesamedirecDon.Besidesthegoldprice,parDcularmenDonamongtheexogenousfactors

25、impacDngthesilverpriceshouldbemadeofcopperandtheCRBIndex(botharenearlyalwaysposiDvelycorrelatedwithsilverbutokenonlymoderatelyso)andtheDXYUSdollarindex(overthelast13yearsnegaDvelycorrelatedsaveforjustonequarterbutafarweakerrelaDonshipstaDsDcallythanthegold:dollarone).Finally,theinfluenceofinflaDonan

26、dinterestratesonsilverpricesappearstobelessclear-cutfromthedata.2.NominalandRealPricesThesilverpriceoverthefirsttenmonthsof2023averaged$23.29/oz.Thisisasolidimprovementon2022sfull-yearfigureof$21.73/oz.Silverisalsotradingwellaboveits2014-19averageof$16.81/oz.Overthepastthreeyears,arecoveryinfabricaD

27、onfromitsCOVID-inducedslumpcoupledwithbuoyantSource:LBMA-50%-25%0%25%50%75%100%125%-50%-25%0%25%50%75%100%125%1980198219841986198819901992199419961998200020022004200620082010201220142016201820202022S ilver&Gold Prices(change Y oY in%)GOLDAnnualChangeinSilverandGoldPricesSILVER 5investmenthasledtoara

28、tcheDngupinthesilverpriceanditstradingrange.Nevertheless,asthechartbelowshows,pricesremaindistantfromtheir2011-12bullmarketpeaks.Moreover,theseare,ofcourse,nominalprices.LookingatthepriceininflaDonadjustedtermsprovidesamoresoberingperspecDve,especiallythefurtherbackinDmeonelooks.AdjusDngthenominalpr

29、icebytheUSConsumerPriceIndexandindexingthemonthlyaveragedatatoJune2023termsshowshowhighpastpeakswereintodaysmoney.”Onthisbasis,theApril2011peakwas$57/oz,whiletheall-DmemonthlyaveragehighinJanuary1980comesinatnolessthan$153/oz.ItisalsointeresDngtoobservehowhighrealsilverpriceswereinthesecondhalfofthe

30、1970sandthefirsthalfofthe1980s.Lookingahead,silverbullsmaytakecomfortfromthefactthatsilverisinrealtermssDlllooking“goodvalue”atalifleunderthe$25-mark.Itisalsoarguably“under-priced”relaDvetogold,withthegold:silverraDoaveragingahistoricallyhigh83:1inthefirsthalfof2023.Silverisalsoasmallmarket:In2022,t

31、hevalueofglobalmineproducDonwasjust$18billion.ItwouldthereforenotrequireaconsiderableamountofaddiDonalinvestmenttodrivepricesmuchhigher.Ontheotherhand,thoseinclinedtoseetheglass“halfempty”mightfearanoppositeoutcome:thatsilvercouldsefleatalowerlevelif,asinthe1990s,disappointedinvestorsweretoturnagain

32、stthemetalandliquidatesubstanDalbullionstocks.Atpresent,thereisnoindicaDonthatsuchasea-changeininvestorsartudestowardssilverislikelyquitetheoppositebuttheimpressivebuild-upininvestorsholdingsoverthepast15yearscouldrepresentathreatforthepriceinanenvironmentoflowinflaDon,highrealinterestratesandmuchlo

33、wergoldprices.Ifthatwerethecasethenthefocuswouldshiktothemetalsothersupply/demandfundamentals,especiallytheoutlookformineproducDonandfabricaDondemand.3.SilverSupplyandDemandThatsilversupplyanddemandmafersforthepriceandviceversamightbeconsideredatruism.Akerall,itisafundamentallawofeconomicsthatinafre

34、emarkettheinteracDonofsupplyanddemanddeterminesthepriceofthecommodity,goodsorserviceinquesDon.However,insilverscasesupply/demandanalysisiscomplicatedbysilverslegacyasamonetarymetalanditsconDnuedacceptanceasaninvestableasset.Theresultisthatabove-groundstocksofbullionandinvestmentdemandplayan 6outsize

35、droleinsilvercomparedtoother“purer”commodiDes,suchascopperorpalladium,wherestocksaremuchsmallerandinvestorinterestfarnarrowerandshallower.Inthisregard,silverisclosertogold,whosepricetoanevengreaterextentissubjecttochangesofownershipinitshugelevelofabove-groundbullionstocksandininvestorsenDmenttoward

36、sthepreciousmetal.3.1MineProducDonSilversupplyisdominatedbymineproducDon.From1990to2022outputfromtheworldsminesconsDtutedanaverage76%oftotalannualsupply.Betweenthesepoints,mineproducDonhasgrownby59%ornearly312Mozfrom1990s524.5to2022s836.0Moz.AsimplecorrelaDonanalysisofthelevelsofmineproducDonandthes

37、ilverpriceshowsastrongposiDvecorrelaDonbetweenthetwoseriesoverthelast32years,withanadjustedR-squaredof0.80.And,indeed,theannualaveragesilverpriceroseby350%overthesameperiodanddoubledinrealterms.Yet,thisissimplyagoodexampleofthefactthatcorrelaDondoesnotnecessarilyimplycausality.Thisisshownbythefactth

38、atthesamestaDsDcalexerciseusingtheannualchangeinbothseriesshowsnomeaningfulrelaDonshipwhatsoever.Furthermore,logicandeconomictheorytellsusthat,takeninisolaDon,amajorincreaseinsupplyhastohavebeennegaDveforsilverprices.However,amiDgaDngfactorwillhavebeenthefactthatthis“supplyshock”waslargelyspreadouto

39、veramulD-yearperiod.Forexample,takingtheperiodofmostintensegrowthfrom2002-16,whenoutputroseby306Moz,theaverageannualgrowthratewas“only”3.0%.Nevertheless,persistentgrowthof3%wouldhavecreatedasignificantheadwindforthepriceoverDme.Therefore,otherfactorswereclearlyatworktomiDgateandoverwhelmtheimpactoft

40、his“supplyshock”ontheprice.Nonetheless,itisinteresDngtoconsiderthecounterfactualofwhatmighthavebeenhadsilvermineproducDonincreasedbyalotlessthan3%perannumoverthis30-yearperiod.ThisbringsustoanotherkeyobservaDonwhenanalyzingtherelaDonshipbetweenmineproducDonandthesilverprice:Thefactthatmostsilverismi

41、nedasaby-product.Asaresult,thepricesoflead,zinc,copperandgoldaremoreimportantformostminedoutput.Thatsaid,thesilverpriceleveliscriDcalforthesmallerprimarysector.Forexample,primaryproducDonwassDmulatedinthemid-1990sbyarecoveryinthesilverpriceandafurtherboostcamefromthebullmarketfromthemid-2000stotheea

42、rly2010s.Between1991and2010primaryproducDongrewfrom73Mozto225Moz.(Primarysshareoftotalminedoutputoverthisperiodrosefrom17%to30%.)Undoubtedly,theaddiDonalouncesthatwereenteringthemarketbythelaferdatewillhavehadsomedampeningeffectonthesilverprice.Conversely,sincepeakingin2014at882Moz,totalglobalsilver

43、mineproducDonhastendedtodecline(mainlyduetoloweroutputfromprimarysilvermines),withadropof46Mozby2022,providingamodestamountofsupporttothesilverprice.73.2ScrapRecyclingAbove-groundstocksofsilvercanbedividedintotwoprincipalcategories:Fabricatedproductsandbullion(barsandcoins).ThissecDoncoversthesupply

44、ofscrappedfabricatedproducts,withsupplyfrombullionstockscoveredinsecDon3.5ofthisReport.Theabove-groundstockofsilverinfabricatedproductsisenormous.From1990-2023alone,agross25,600Mozofsilverwastransformedintofabricatedproducts(excludingbars,coins,andmedals).BasisWorldSilverSurveydatafortheprevious40ye

45、ars,from1950-89,another13.448billionounceswasusedforindustrialpurposesfrom(excludingtheCommunistBloccountries).Tothisfigureof39billionouncescouldbeaddedfabricaDondemandintheCommunistBloccountriespriorto1990andgloballegacystocksbuiltupoverthecenturiespriorto1950,whichinthelafercasewouldmostlyconsisto

46、fsilverware.Yet,whileintheoryagoodpartofthisapparentlyhugepoolofmetalcouldbeavailabletothemarket,inpracDcetherealityisverydifferent.Firstly,anotinsignificantpartofthesilverfabricatedsincethe1950swillhavealreadybeenrecycled.Basedonananalysisofthehistoricaldata,cumulaDverecyclingoverthese70-plusyearsh

47、asbeentheequivalenttoabitlessthanone-fikhoftotalfabricaDonexcludingcoinsoverthesameperiod.Secondly,thebulkofthelegacysilverwareistobefoundinreligiousobjectsthatwillnotasaruleberecycled,nomaferwhatthepriceofsilver.Thirdly,whenitcomestoalargeshareofindustrialproducts,thesilvercontainedgenerallyistoosm

48、alltowarranteconomicalrecyclingandwherethisisnotthecase,recyclingisdrivenmorebyproductend-of-lifeandenvironmentalconsideraDonsthananypricefactors.Thedataonrecyclingandpricebear-outtheaboveobservaDonsthatthelevelofrecyclingisrelatedonlytoonlytoalimitedextenttotheleveloforchangeinthesilverprice.(At0.2

49、9thecorrelaDonco-efficientforlevelsisposiDvebutratherlow,whilethefigureforchangesinthetwoseriesbetween1990and20220510152025303501002003004005006007008009001000110019901992199419961998200020022004200620082010201220142016201820202022S ilver Price(US$/oz)Mine Production(Moz)MineProductionSilverPriceMin

50、eProductionandSilverPriceSource:SilverInstitute;LBMA0510152025303501002003004005006007008009001000110019901992199419961998200020022004200620082010201220142016201820202022S ilver Price(US$/oz)T otal S upply*(Moz)MineProductionScrapRecyclingSilverPriceTotalSupplyandSilverPrice*TotalSupplyisheredefined

51、asMineProductionplusScrapRecyclingSource:SilverInstitute;LBMA 8is0.52.)ExperienceduringthelastmajorbullmarketforsilveralsodemonstratesthatevenveryrapidlyrisingandhighsilverpriceshavearelaDvelysmallimpactonscrapsupply.Forexample,atitspeakin2011at223Mozandanaveragepriceof$35/ozthatyear,silverscrapwasj

52、ust10%higherthanithadbeenin2008whensilveraveraged$15/oz.Indeed,independentlyoftheprice,otherfactorshavebeenatworkindrivingrecyclingvolumes,suchasthedisplacementofsilverhalidephotographybydigitaltechnology(leadingtoahalvingintheamountofscrapsilverfromthissourcesince2012)orthesubstanDalgrowthinethylen

53、eoxidecapacity(80%between2010and2022)andtherelatedjumpintherecyclingofthesesilver-richcatalysts.3.3FabricaDonDemandFabricaDondemandisdefinedforthepurposesofthisReportasthesumofitsIndustrial,Photography,JewelryandSilverwarecomponents.Itthereforeexcludesallcoins,medalsandbardemand,whichareanalysedinse

54、cDon3.5ofthisReport.Thegroundfordoingsoisthatcoins,medalsandbardemandarecategoriesofinvestment,moresuitedtotheanalysisoftherelaDonshipthathaswiththesilverprice.Between1990and2022fabricaDondemandonaverageaccountedfor86%oftotalsilverdemand.TakeninisolaDon,thisfactmightbesuggesDveofacloserelaDonshipbet

55、weenthelevelofandchangesinfabricaDonandsilverprices.Thedata,however,tellamorenuancedstory.WhilefabricaDonandpriceareasexpectednegaDvelycorrelated,thecorrelaDonvaluesover1990-2022forboththelevelsandchangesintheseriesarenotsignificantatjust-0.09and-0.12,respecDvely.(ThecorrelaDonforchangesat-0.18islif

56、lechangedfor1990-2003,whenfabricaDonsshareoftotaldemandaveraged95%.)Source:SilverInstitute0%5%10%15%20%25%30%35%40%45%50%55%60%65%70%75%80%85%90%95%100%0%5%10%15%20%25%30%35%40%45%50%55%60%65%70%75%80%85%90%95%100%19901992199419961998200020022004200620082010201220142016201820202022S hare of Annual S

57、 ilver Demand(%by C ategory)FabricationDe-HedgingInvestmentGovernment 9ThatthereisonlyaweaknegaDvecorrelaDonisnotallthatsurprisingwhenconsideringthatthebulkofsilverfabricaDonhasconsistedofindustrialandphotographicdemand(anaverageof69%for1990-2022).Thesecategoriesofdemandhavebeendrivenfarmorebytechno

58、logicaldevelopmentsthanbysilverprices.(HencefabricaDondemandssteadinessover2003-08inspiteofatriplinginthepriceanditsremarkableresilienceover2010-12inthefaceofasoaringsilverprice.)InaddiDon,industrialdemandandtoalesserextentjewelry&silverwaredemandarestronglyinfluencedbychangesinindustrialproducDonan

59、dGDPgrowth.ThisisnottosaythatfabricaDondemanddoesnotexhibitanypricesensiDvity.Itsjewelry&silverwarecomponentcertainlydoesandarguablymoresothesedaysasmuchofthisdemandhasshikedtoIndiaandChina,whereconsumersaremorepricesensiDveandarDclesaretypicallysoldonlowermark-ups.And,evenwhenitcomestoindustrialdem

60、and,higherpricesoverDmecanleadtothrikingand,inafewcases,outrightsubsDtuDon.PhotovoltaicdemandhasexperiencedtheformerandtheamountofsilverusedinbrazingalloyshaslongsincedroppedbacktoaspecializedcoreduetosubsDtuDonbylower-costalternaDves.Lookingahead,fabricaDondemandmayalsohaveanimportanteventualimpact

61、onthepriceifitexceedstheamountofsupplyderivedfrommineproducDonandscrap.Theprecedentforthiswasinthe1990s,whenincreasingfabricaDondemandandliflegrowthinsupplyfromminesandscrapledtolargedeficitsinthemarketthatdepletednear-marketstockpilesofbullion,serngthesceneforamovehigherintheprice.WithsDllreasonabl

62、yhighlevelsofinvestmentdemand(implyinganoverallsurplusinthemarket)suchascenariomayseemalifleunlikelybutaderivaDveofitisplausible.ThiswouldrestonconDnuedhighlevelsoffabricaDondemandandnetdemandforsilverbarsandcoins(i.e.,theNetPhysicalInvestmentcategoryintheWorldSilverSurvey)plusstabilityinETFholdings

63、,thatwouldtogetherrequireadrawdownofotherbullionstockpilesforoverallsupplyanddemandofsilvertobeinequilibrium.ThiswouldinDme,leadtoupwardpressureonthepriceiftheotherabove-menDonedcondiDonsweretoremaininplace.3.4Deficits&SurplusesThesilvermarkettendstomovethroughcyclesofdeficitsandsurpluses.Thesearebr

64、oughtaboutbychangesintheprincipalcomponentsofsupplyanddemandthatcanbringaboutextendedperiodswhenthereisarequirementtodrawdownbullioninventoriestofilladeficitorwhenasurplusresultsinabuild-upinbullionstocks.Inthe1950sandearly1960ssupplyfrommineproducDonandscrapwasinsufficienttomeetindustrysrequirement

65、sforsilver.Thedeficitduringthoseyearswascoveredbygovernmentsales,especiallyfromtheUnitedStates.Fromthelate1960stotheearly1970sthesilvermarketwasinsurplus,withtheexcesssilverpurchasedbyinvestors.Someofthesestocksweresubsequentlyliquidatedinthe1970sasthemarketwasindeficitandrequiredaddiDonalsuppliesof

66、metal.Highersilverpriceswereneededtoteasethatsilveroutofinventories.Fromthelate1970sthroughtothemid-1980sthesilvermarketwasinsubstanDalsurplus.HigherpriceshadreducedfabricaDondemandandsDmulatedaddiDonalsupplyfromminesandrecycling.Investorswerekeenbuyersofsilverinanenvironmentof(iniDally)risingsilver

67、prices,highinflaDonandnegaDverealinterestrates.Thesubsequentfallinsilverpricesforawhilesimplyencouragedmoreinvestmentasinvestorsbefedonareboundintheprice.Incontrast,the1990ssawthemarketswingintodeficitandthiswasfilledbyasubstanDalrun-downininvestorsbullionstocks.ThedepleDonofmuchofthenearmarketbulli

68、onstocksoverthatdecadefacilitatedthepricerecoveryinthe 10followingdecade.TheperiodsincehasseenthemarketreturntoasubstanDalsurplusthathasbeenabsorbedbyveryhighlevelsofinvestmentdemand.Takingthe1990-2022dataondeficitsandsurplusesdefinedinthecaseofthisReportasthedifferencebetweensupplyfrommineproducDon

69、plusscrapandfabricaDondemandexcludingcoins&barsshowsastrongposiDvecorrelaDonbetweenbullionsurplusesandthesilverprice.AcorrelaDoncoefficientof0.86forthepriceandsurplus/deficitlevelsisnotsurprisinggiveninvestorsprominentroleinpricedeterminaDon.(RegressionanalysisalsoshowsastrongrelaDonshipwithanadjust

70、edr-squaredof0.72.)Aswillhavebeennoted,themostimportantcomponentsincethe1970softheseswingsbackandforthfromsurplustodeficithasbeeninvestmentordisinvestment.Itisalsonoteworthythatwhileinthe1970shigherpriceswereneededtosDmulatesupplyfrominvestorsbullionstocks,thesamewasnottrueinthe1990swhensalesoutofst

71、ocksweredrivenmorebylowexpectaDonsforthepriceandadesiretoraisecashformorepromisinginvestments.3.5SupplyfromBullionStocksThesecondmajorcomponentofabove-groundsilverstocksconsistsofbullioninventories.Suchstocksareheldprincipallybytheprivatesector,eitherdirectlyassilverbarsandcoinsoronbehalfofinvestors

72、bythirdparDesinallocatedformorindirectlyviapaperclaimsondifferentformsofunallocatedsilver.AccordingtoMetalsFocus,IdenDfiableBullionInventoriestotaledsome1,278Mozattheendof2022,thebulkofthesestockswereheldbyloco-London(841Moz)orinCMEdepositories(299Moz).InaddiDon,globalETPholdingscameto1,009Mozatthee

73、ndof2022,aliflelessthanhalfofwhicharenotreflectedintheloco-LondonnumbersortheothercomponentsofIdenDfiableBullionInventories.11Besidesthesenear-marketbullionstocksisaseparatecategoryofbullionstocksthataregenerallymore“retail”innature,predominantlysmallbarsandcoinspurchasedandokenheldbyindividualinves

74、tors.TheNetPhysicalInvestmentcategoryintheannualWorldSilverSurveysSummaryTabledetailsdemandfromthissource,withcumulaDvepurchasesof3,145Mozbetween2010and2022.Theaboveanalysissupportsafigurenotfarshortof5billionouncesofknownabove-groundsilverbullionstocksattheendof2022.Whethersilverisaddedtoorsubtract

75、edfromthattotalwillbecriDcalfortheprice,asdemonstratedinthepast.Governmentbullionstockshaveinthepastbeenanimportantelementofthesilvermarket.AtDmes,parDcularlyintheUS,thegovernmenthasbeenaprincipalbuyerofsilver,notleastfortheminDngofcirculaDngcoins.ThetransiDonduringthe1960sawayfromusingsilverincoins

76、notonlyreduceddemandfromgovernmentsbutalsointheUSresultedintheTreasurysupplyingthemarketfromitsabundantstocks,atDmesinanulDmatelyvainafempttoholddownsilverpricesandstaveoffthemelDngorhoardingoflegaltendercoins.Bytheendofthisprocess,USTreasurystockshaddwindledfromapeakofover2billionouncestotriviallev

77、els.Subsequentdecadessawaverymuchlowerlevelofsupplytothemarketfromgovernmentstockpiles.Onlyattheendofthe1990sthroughtothemiddleofthe2000sdidgovernmentsalesbrieflyreappearasarelaDvelyimportantsourceofsupply.ThesesalesmostlycamefromChinaandwerenegaDveforthepricebecauseoftheaddiDonalsupplyofmetalandthe

78、irimpactonmarketsenDment.Subsequently,theverysmallannualchangesingovernmentbullionstockshavehadanegligibleimpactonthesilvermarket.3.5.1InvestmentThelegacyofthesupplysurplusesinthesilvermarketfromtheearly1960sthroughto1970andagainfrom1979-89wasatremendousbuild-upininvestorssilverbullioninventories,mu

79、chofthisintheUnitedStates.Subsequently,from1990to2000,thesilvermarketexperiencedaphaseofconDnuousnet05101520253035400501001502002503003501990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020MozScrapGovernmentHedgingSilver PriceUS$/ozNet DisinvestmentSource:Silver Institute;LBMA 12disinvestment.Duri

80、ngthisperiod,therewasasustaineddeficitassupplyfrommineproducDonandrecyclingfellshortoffabricaDondemand(excludingcoins).Investorsnetsalessuppliedmostofthisshorvall.(AsmallercontribuDoncamefromgovernmentstocksales.)Totalsalesfromtheprivatesectorsabove-groundbullionstockscametosome590Mozovertheelevenye

81、ars,withhekysellingbetween1992-97andin2000.LiquidaDonofthesestocksreflectedacombinaDonofinvestordisillusionmentandinheritedposiDonsbeingsoldforcashtoinvestinotherassetsorsimplytosupportconsumpDonexpenditure.AttheDme,silverdippedtowellbelowthe$5-mark,withseeminglyliflescopeforameaningfulreboundinthep

82、rice.Ofcourse,thesellingoutoftheenormousstocks,muchofthemintheUSintheformofcoinbagsand100-ozbars,thathadbeenbuiltupinthe1960sandlate1970s/early1980swaspreciselyoneofthereasonswhysilverlanguishedatsuchalowlevel.Thiswasalsonoteworthybecauseofthecontrastwiththe1971-78periodwhendeficitscouldonlybesuppli

83、edthroughrisingsilverpricesteasingmetaloutofabove-groundstocks.ThedepleDonoftheseabove-groundbullioninventoriesbythebeginningofthe2000shelpedtosetthesceneforarecoveryinthepriceoverthatdecade.Therewassimplylessavailablenear-marketbullionbythentoholddownpricesasfabricaDondemandexpandedand,especially,w

84、heninvestorinterestblossomedfrom2009onwards.ItistheswingfromsubstanDalnetdisinvestmentin1990-2000to(growing)netinvestmentfromthemid-2000sto2012thatexplainsmuchofthesilverpricemovementduringthosetwenty-plusyears.TherelaDonshipbetweeninvestmentandbullionstockchanges,andthepricemayiniDallyseemlessclear

85、-cutwhenlookingatthepastdecade.Forinstance,investmentandaddiDonstobullionstocksremainedatveryhighlevelsover2012-16,evenassilverwasmorethanhalvinginvalue.TheexplanaDonisthatmanyinvestorssDllbelievedinhighersilverpricesfollowingthetremendousgainsinpreviousyearsandthereforesawthedipinpriceasanexcellent

86、buyingopportunity.(Asimilarphenomenonwasobservableintheearly1980s.)FinancialdevelopmentsattheDmeencouragedsuchopDmism.ManybelievedthatcentralbanksquanDtaDveeasing(QE)policieswouldstokeinflaDonand,inanycase,ultra-lowinterestratesmeantthecost-of-carryofsilverposiDonswasclosetozero.Whilethiscommitmentt

87、o 13silverwasnotenoughtopreventaslumpintheprice,anevenmoreseverecorrecDonwouldsurelyhavetakenplaceinitsabsence.WhenassessingtheimpactofinvestmentonthepriceitisalsoimportanttodisDnguishbetweendifferentgroupsofinvestors.Forexample,andtakingtwoextremes,privateinvestorspurchasingphysicalsilvertendtotake

88、alonger-termviewbasedonmorefundamentalconsideraDonsthanCommodityTradingAdvisorspunDngsilverfuturesontheComexbasedontechnicaltradingstrategies.(Note:TherelaDonshipbetweenmanagedmoneyposiDonsinComexsilverfuturesandthesilverpricefrom2009-2022isstaDsDcallyposiDvebutsurprisinglylow,althoughovershorterDme

89、periodsitcanbealothigher.)Moreover,whilemanyinvestorsaretrendfollowers,othersmightbedescribedmoreasvalueinvestors,inclinedtobuydipsandsellrallies.AtDmes,therefore,investmentinaggregatemaybemoreofasupporDvefactorforpricesaswasthecasefrom2013-2019thanadriverofhigherpricesasoccurredin2010-12andagainin2

90、020-21.ThepriceriseinthelaferperiodledtoasurgeininterestinExchangeTradedProducts(ETPs),parDcularlyfromApriltoAugust2020.Conversely,theflowoutofETPsin2022wasafactordrivingdownsilverprices,eventhoughdirectpurchasesofbarsandcoinsboomedthatyear,sDmulatedbyprivateinvestorsbargainhunDng.Inconclusion,muchd

91、ependsonwhoisbuyingandwhy.ThistendstomuddythewaterswhenitcomestoastaDsDcalanalysisofthedataforannualinvestmentdemandandthesilverprice.Notwithstandingthiscaveat,thedatafor1990-2022showsastrongposiDverelaDonshipbetweenthesilverpricelevelandthelevelofinvestment,withacorrelaDoncoefficientof0.83andanadju

92、stedr-squaredof0.68.(ItisinteresDngtonotegoldinvestmentshigheradjustedr-squaredof0.86forthesameperiod.)3.5.2OfficialSector 14Asindicatedabove,sincethe1970sofficialsectororgovernmentsales(orpurchases)havegenerallynotbeenasignificantfactorforthemarketortheprice.(Silverisunlikegoldinthisregard,asindica

93、tedbythechartshowingsales/purchasesasapercentageofsupply/demand,respecDvelyforbothmetals.)TheexcepDontothiswastheperiodfrom1998-2008whengovernmentsalesaveraged62Mozperannum(salesrangedfromahighof97Mozin1999tolowof31Mozin2008).TheseofficialsalespredominantlycamefromChina,withmuchsmallerquanDDesoffloa

94、dedbytheUSandRussia.TheprincipalmoDvaDonforChinesesalesappearstohavebeenthetransiDonfromagovernment-controlledtoalargelyfreemarketforsilverinChina.Inlightofthis,ahighlevelofstrategicstockswasconsideredunnecessary.ThequanDtyofmetalsoldbytheofficialsectorfrom1998-2008accountedfor7%oftotalsupplyoverthe

95、se11years.Thiswasenoughtocreatesomeheadwindstothepricebutnotsufficienttohaltitsadvanceovertheperiod:annualaveragepricesroseby2.7Dmesbetween1998and2008.Nevertheless,from1999-2001,anecdotalevidenceattheDmepointedtogovernmentsalesand,especially,thefearoffurtherofficialsellingasnegaDvelyimpacDngtheprice

96、.Thiswaspartlyrelatedtodevelopmentsinthegoldmarket,whereanexcepDonallyhighlevelofofficialsectorsalesandlendingtofundawaveofproducerhedgingwaspushingdowngoldpricesattheDme.Thefear,inretrospectquiteunfounded,wasofsomethingsimilartakingplaceinsilver.Source:SilverInstitute,GFMS,MetalsFocus0%5%10%15%20%2

97、5%19901992199419961998200020022004200620082010201220142016201820202022S hare of Annual S upply/Demand(in%)SilverGold 154.ExogenousFactorsSecDon3ofthisReportdiscussedtheendogenoussupplyanddemandfactorsthathaveabearingonthesilverprice.InthissecDontheanalysisturnstothoseexogenousfactorsthatcouldbeimpor

98、tantforsilverpricedeterminaDon.4.1GoldPriceSilvershistoricallycloserelaDonshipwithgoldowesmuchtothesepreciousmetalshavingbeenatthecenterofnearlyallpre-modernmonetarysystems,bothasameansofexchangeandastoreofvalue.Theirlegacyasmoneyandthefactthatsilverandgoldarescarceandofhighintrinsicvaluemakesthemaf

99、racDveassetsformanyinvestorsacrosstheglobe.ItshouldcomeasnosurprisethenthatsilverandgoldpricesmostlytravelinthesamedirecDon.Majormovesupanddowningoldoverthelast50-plusyearssincethefixedpricewasabandonedhavealwaysbeenfollowedbysilver,althoughtheamplitudeofitsmoveshavebeengreater,bothtotheupsideandthe

100、downsideinthemajorboomsandbustsof1979-86and2004-15.Occasionally,silverhasclearlygoneitsownway.Forexample,in1997/98duringtheperiodthatWarrenBuffetwaspurchasing130MozofsilverandinitsakermathormorerecentlyinFebruary-March2020whenthesilverpriceSource:LBMA0510152025303540455001002003004005006007008009001

101、00011001200130014001500160017001800190020001970-01-011972-01-011974-01-011976-01-011978-01-011980-01-011982-01-011984-01-011986-01-011988-01-011990-01-011992-01-011994-01-011996-01-011998-01-012000-01-012002-01-012004-01-012006-01-012008-01-012010-01-012012-01-012014-01-012016-01-012018-01-012020-01

102、-012022-01-01Silver Price(monthly average,US$/oz)Gold Price(monthly average,US$/oz)GoldSilverSilverandGoldPrices 16slumpedearlyonintheCOVIDpandemic.Theseare,however,excepDonstotherulethatgoldandsilvertraveltogether,albeitokenatdifferentspeeds.Theclosenessofthesilver-goldrelaDonshipisborneoutbyastudy

103、ofthedatafor1970-2022.AnanalysisofthemonthlyaveragepricedatafromJanuary1970toJune2022producesahighcorrelaDonco-efficientof0.90forsilverandgoldpricelevels.LookingatmonthlychangesforthesamedataandthesameanalysisgeneratesasignificantcorrelaDonco-efficientof0.69.Similarly,aregressionanalysisonchangesinp

104、ricesproducesanadjustedR-squaredof0.47fortheJanuary1970toJune2023period.Muchthesamemessagecomesfromaquarterlyanalysisoflogreturnsindailysilverandgoldpricesfrom2010.Q1to2023.Q2.Thisdataalsosuggeststhatthesilver:goldrelaDonshiphastendedtobecomeclosersince2015.ThedominantpartnerinthisrelaDonshipisalmos

105、talwaysgold,withsilvertakingitsleadfromtheyellowmetal.ThisissurelyafuncDonofmarketsizeanddepthplusthefactthatgoldisa“purer”financialassetthansilver.Goldismoreresponsivetochangesinotherfinancialassetpricesandtointerestrates,exchangeratesandinflaDon.Onthecommodity-currencyspectrumsilverissomewhatmoreo

106、facommodityandgoldmorelikeacurrency,asevidencedbythewhitemetalsgenerallymuchhighervolaDlity.Finally,whiletherelaDonshipbetweensilverandgoldpricesisdirecDonallyclose,theraDobetweenthetwometalsdoesvaryquiteconsiderably.Analysisofmonthlyaveragepricesshowsconsiderablemovementinthegold:silverraDonotonlyo

107、namonthlybasisbutalsowhenlookingataveragesforthisraDoby-decade.ThecurrentdecadetodatehassofarshownatendencyfortheraDotomovehighercomparedtothe2010s,assilverhasunderperformedgold.Source:LBMA152025303540455055606570758085909510010511011515202530354045505560657075808590951001051101151970-1973-1976-1979

108、-1982-1985-1988-1991-1994-1997-2000-2003-2006-2009-2012-2015-2018-2021-Gold:S ilver Ratio(monthly averages)AverageperDecadeGold:SilverRatioGold:SilverRatio 174.2CopperPriceItmayseemstrangetothecasualobserverthatthesilverpricecouldbeinfluencedbythepriceofabasemetal.Yetbesidesthenow-distantsharedmonet

109、arylegacyofbothsilverandcopper,therearepresent-daylinksbetweenthesetwocommodiDes.First,onthesupplyside,asubstanDalshareofsilvermineproducDoncomesasaby-productofminedcopperoutput.In2022,nolessthan212Mozofsilverwasproducedfromcoppermines,afigurethatrepresented26%oftotalsilvermineproducDonand21%oftotal

110、silversupply.Second,onthedemandside,industrialend-usesdominateforcopperandarepredominantforsilverat45%oftotalsilverdemandin2022.Moreover,industrialapplicaDonshavebecomeamoreimportantcomponentofsilverdemand.IndustrialdemandsshareoftotalfabricaDondemand,excludingcoins,hasrisenfrom40%inthe1990sto63%int

111、hepastdecade.AnalyzingmonthlyaveragesilverandcopperpricesfromJanuary1990toJune2023showsaclosecorrelaDonof0.90betweenthetwometals.Whenitcomestopricechangesforthesamedataset,thecorrelaDonco-efficientdropstoaloweryetsDllstaDsDcallysignificant0.35.ThequarterlycorrelaDonsdataforlogreturnsindailypricesfro

112、mQ1.2010toQ2.2023showsthattherelaDonshipbetweenthetwometalshasalmostalwaysbeenposiDve,saveforQ3andQ4.2019whensilverandcopperpricesmovedinoppositedirecDons.Italsoappearsthatoverthelast13years,silverscorrelaDonwithcopperhastendedtofalltheoppositetendencyfromsilverscorrelaDonwithgoldoverthesameperiod.4

113、.3CommodityPricesSource:LBMA;LME05101520253035404510002000300040005000600070008000900010000110001990-01-011992-01-011994-01-011996-01-011998-01-012000-01-012002-01-012004-01-012006-01-012008-01-012010-01-012012-01-012014-01-012016-01-012018-01-012020-01-012022-01-01S ilver Price(monthly average,US$/

114、oz)Copper Price(monthly average,US$/tonne)CopperSilverSilverandCopperPrices 18SilversrelaDonshipwithcommoditypricesstemsprincipallyfromthehighshareofindustrialend-usesinitsfabricaDondemand.Withinthis,theimportanceofsilverfortheautomoDveindustry,inelectronicsandforgreenenergyinfrastructurehelpstostre

115、ngthentheDeswithothercommodiDesthatarerequiredfortheseapplicaDons.InaddiDon,besidespriceandfashion,jewelry&silverwaredemandisstronglyinfluencedbygrowthinoverallconsumerspendingandGDP.Thesefactors,ofcourse,willberelevant,too,forthedemandforothercommodiDes.Finally,investorswhoareinterestedincommodiDes

116、asanassetclasswillokenpurchase(orsell)commoditybaskets,structuresthatcontainmulDplecommodiDes,someDmeswithsilverasacomponent.TheCommodityResearchBureau(CRB)Indextracksabasketof19commodiDes,includingsilver.AnanalysisofthedailydataforthelevelsoftheCRBIndexandthesilverpricefromJanuary2013toJuly2023prod

117、ucesarelaDvelysignificantcorrelaDoncoefficientof0.43.ThecorrelaDoncoefficientforthedailychangesinbothdatasetsremainsnoteworthyat0.33.TheCRBIndexcontainsgoldandcopper,sotheseresultsmightbeunsurprising.However,theother16commodiDesintheCRBbasketincludeadiverseset,suchas:crudeoil,naturalgas,nickel,pork,

118、wheat,andcorn.ThefactthatthereisameaningfulbutloosestaDsDcalrelaDonshipwithsilversupportsthecommentsmadeatthebeginningofthissecDon.Nevertheless,asthequarterlycorrelaDonschartshows,thestrengthoftheCRB/silverrelaDonshipisquitevariable,althoughalmostalwaysposiDve.ThetwooccasionsshownwhenthecorrelaDontu

119、rnednegaDve,namely19.Q4and20.Q4,wereexcepDonalbecauseinboththesequartersenergypriceswerestronglynegaDvelycorrelatedtosilver(aswascopperin19.Q4)whilethepreciousmetalscorrelaDonwithgoldwasonbothoccasionsexcepDonallystrong.4.4ExchangeRatesGlobalmarketstradesilverpredominantlyinUSdollars.Theprofessional

120、Over-The-Counter(OTC)bullionmarketbasedinLondonquotespricesindollarsandontheCOMEXinNewYorksilveris,unsurprisingly,tradedintheAmericancurrency.WhiletherearesomeimportantexcepDons(seebelow),19thefactthatsilverisgenerallyquotedandtradedinUSdollarsmeansthatthecurrencysstrengthorweaknesswillusuallyhavean

121、importantimpactonthelevelanddirecDonofsilverprices.ThisisespeciallysobecauseoftheUSdollarspivotalroleintheinternaDonalfinancialsystem.Whiledollardominanceisunderthreat,progresstoamulD-currencysystem,letalonereplacementbyanalternaDve,isproceedingatarelaDvelyslowpace.Investorswilltendtomovetothesafeha

122、venofpreciousmetalswhenthegloballydominantcurrencyisweak.QuarterlycorrelaDonsbetweentheDXYUSdollarindexandthesilverpriceshowaconsistentnegaDvecorrelaDonbetweenthepair,albeitofvaryingstrength.Thisishardlysurprisinggiventhatthesilverpriceisdeterminedbyamyriadoffactors,whoseinfluenceonthemetaltendstowa

123、xorwaneoverDme.ThisobservaDonalsoholdstruefortheUSdollar:silverpricerelaDonship.Whilethepairare,onaverage,negaDvelycorrelated,itisclearfromthedatathatsilverdoesnotalwaysreactasmightbeexpectedtomovesinthedollar.Otherfactorscanoverwhelmtheinfluenceofthedollarexchangerate,especiallyforshorterDmeperiods

124、.Indeed,evenoveranextendedperiodsilverhasinthepastfolloweditsownpath,seeminglyindependentofsignificantchangesintheUSdollarexchangerate.Thechartshowsthatthiswasthecaseinthelate1990swhenaslumpinthedollardidnotboostthesilverprice,innosmallmeasure,becauseofverysubstanDaldisinvestmentofbarsandcoinsatthat

125、Dme.(Ofcourse,onemightconcludethatwithoutthesupportofaweakerdollarsilverpriceswouldhavebeenevenweakerduringthatperiod.)Overthelast17-18yearsorso,itappearsthataDghternegaDverelaDonshipbetweenthedollarexchangerateandsilverhasemerged.(And,parDcularlysosincetheGlobalFinancialCrisis.)Thissurelyreflectsth

126、egrowinginvestorinterestinthemetalsincethemid-2000s.(And,alsoprobablyastrongercorrelaDonoverrecentyearswithgold,whichisverynegaDvelycorrelatedwiththedollar.)Asaresult,financialratherfundamentalfactorshavebeenofgreaterimportance.Indeed,ifitwereotherwise,thesubstanDalsupplysurplusthathasbeenregularlya

127、bsorbedbyinvestorswouldotherwisehavedrivendownthesilverprice.Itcouldbeconcluded,therefore,thatifinvestmentdemandforsilverweretofallsubstanDally,thensowouldthestrongnegaDvecorrelaDonbetweenthepriceofthepreciousmetalandtheUSdollar.20Asindicatedabove,whiletheUSdollarexchangerateisclearlythemostimportan

128、toneforsilver,fluctuaDonsincertainothercurrenciesmayalsohaveanimpactonthemetalsdollarprice.Thisispredominantlythroughtheirimpactonphysicaldemandforthemetaleitherforinvestmentorjewelry&silverware.(Supplycanalsobeaffectedbyswingsinproducerscurrenciesagainstthedollarbutthesearearguablyonasmallerscalean

129、d,inanycase,takelongertomanifestthemselvesintheformoflowerorhighermineproducDon.)Since2020,thevolumeontheShanghaiFuturesExchangehasexceededthatontheCOMEXdivisionoftheCME.FluctuaDonsintheCNY:USDexchangerateisreportedlyonefactorbehindthenoteworthyriseintradingandopeninterestontheChinesesilverfuturesma

130、rket.TheIndianrupeesexchangeratecanalsofromDme-to-Dmeinfluencethedollarsilverprice.ThisisbecauseofthepricesensiDvityofIndiandemand,parDcularlyforjewelry&silverwarebutalsoincreasinglyforphysicalinvestment.Fortheformer(combined),Indiaaccountedfor54%ofglobaldemandin2022,absorbingsome165Moz.InaddiDon,in

131、2022,physicalinvestmentaccountedforover79Moz,placingthecountrysecondonlytotheUnitedStates.Importantly,Indiaimportsthevastmajorityofthesilveritconsumes.Theseimportsreachednearly307Mozin2022.Therupeesexchangerateisanimportantfactorforthelocalpriceofsilver,domesDcdemandandthelevelofbullionimports.4.5In

132、flaDonInflaDonshouldintheorybegoodforsilverprices.Firstly,mostinflaDonaryepisodesarecharacterizedbyrisingcommodityprices,whichthemselvescontributetoanincreaseinthegeneralpricelevel.(Inthisregard,silversgenerallyposiDve,mildcorrelaDonwiththeoilpriceisnoteworthy.)Secondly,albeitmuchlesspronouncedthang

133、old,silverissDllparDallyregardedasafinancialassetthatshouldprovidesomedegreeofprotecDonagainstinflaDon.InpracDce,historicaldataprovidesomesupportforthetheorythatsilverpricesareposiDvelycorrelatedwithinflaDon.BothmajorinflaDonaryepisodesintheUSinthe1970ssawsilvermakesubstanDalgains.Silvertripledinthe

134、firstoftheseandintheseconditsoaredtoamonthlyaverageabove$33inJanuary1980inthefaceofdouble-digitUSCPIinflaDon.Whileotherfactorswerebehindthespiketothispeak,thetrendhigherinthepricethatforeshadoweditwasinpartduetoinvestorbuyingmoDvatedbyrisinginflaDonandnegaDverealinterestrates.21ThedropininflaDonbrou

135、ghtaboutbytheVolckerFedsaggressivemonetarypolicywasanimportantfactorinthesubsequentcollapseinthesilverpriceintheearly1980s.Similarly,lowerlevelsofinflaDon,parDcularlyinthe1990s,appeartohavehelpedtokeepalidonsilverprices.Thejumpinsilverpricesinthelafer2000sand,especially,atthestartofthefollowingdecad

136、e,occurredataDmeofsubduedinflaDon.ThisprovesthepointthatinflaDonisnotanecessarycondiDonforariseinthesilver(orgold)price.Yet,itisworthrecallingthattheexpansionintheFederalReservesandothercentralbanksbalancesheetsduetoQuanDtaDveEasinginresponsetotheGlobalFinancialCrisisattheDmeraisedinflaDonexpectaDon

137、s,whichhelpedtoboostgoldandsilverpricesoverthe2009-11period.ThemostrecentwaveofinflaDonintheUSandelsewherehashadfarlessofaposiDveimpactonthesilverprice.GainsinthepricemostlyoccurredpriortothemajorsurgeinUSinflaDon.Nevertheless,sincethen,theeffectofhighlevelsofinflaDonmayhaveplayedapartinkeepingthesi

138、lverpriceelevated,withnoreturntothesub-$20levelsitwastradingatpre-COVID.ThislackofresponsecouldbebecausethemarkethasgenerallyretaineditsconfidenceintheUScentralbank,andthus,expectaDonsoffutureinflaDonhaveremainedfairlysubdued.Italsomayreflectamoregenerallackofinvestorinterestinsilvercomparedtothepas

139、t.InvestorshavenotthisDmereachedforsilverasahedgeagainstinflaDon.4.6InterestRatesAsanon-interest-bearingassetformostinvestors,silveroughttostrugglewheninterestratesarerisingand/oratahighlevel.Theopportunitycostofholdingsilverundersuchcircumstanceswouldhavetobemorethancompensatedbyotherfactorsrecomme

140、ndingthemetaltoinvestors.MoretoxicsDllforthewhitemetalshouldbeanenvironmentofrisingand/orhighrealinterestrates.TheprevioussecDontouchedupontheimpactofaswitchin1980fromapreviouslyloosetoanultra-Dghtmonetarypolicyhadonsilver.TheFedaggressivelyraisedtheFederalFundsratetoapeakof20%in1981,whichwasamajore

141、lementindrivingdownthesilverprice.Thereaker,anextendedperiodofhighnominalandrealinterestratesintheUSwasundoubtedlyafactorinkeepingsilverpriceslow 22duringthe1990s.Incontrast,themajorfallinnominalratesand,especially,realinterestratesslumpingtonegaDvelevelsinthewakeoftheGlobalFinancialCrisisprovidedam

142、ajorsDmulustosilverprices,evenifpartofthisimpactwasindirectlythroughthemediumofhighergoldprices.TheresponseoftheFedtotheCOVIDcrisisandthefinancialinstabilitythepandemicindirectlyhelpedtocausewasswiklytocutinterestrates,withtheFederalFundsrate(upperbound)droppingto25basispointsinMarch2020.Silverprice

143、sthathadbeenbafereddowntothe$12levelinresponsetotheearlyimpactofCOVIDoncommodiDesdemandsurgedhigherinthewakeofthis.ThesubsequentfurtherdropinrealinterestratesappearstohavethenbeenanimportantelementintheaddiDonalgainssilverhadinthesecondhalfof2020anditsongoingstrengthinthefirsthalfof2021.Curiously,th

144、edropinrealratesmoredeeplyintonegaDveterritoryduringthesecondhalfof2021andthefirstquarterof2022sawsilvergivingupsomeofitsearliergains.SilversnegaDvecorrelaDonwithinterestratesappearedtohavebeenre-establishedduringtheremainderof2022astheFedembarkedonaseriesofinterestrateincreases.However,whilehigherU

145、Spolicyratesand,morerecently,areturntoposiDverealinterestrateshavedampenedsilverpricestheyhavenotreturnedtopre-pandemiclevelsand,arguably,havebeensurprisinglybuoyantinthefaceofasignificantDghteninginUSmonetarypolicy.Oncemore,thissupportstheobservaDonthatsilverpricesaredrivenbymulDplefactors,whoseinf

146、luenceonthemetalcanfluctuateoverDme.4.7StockPrices 23TherelaDonshipofsilvertostockpricesshouldintheorybeviathelinkbothhavetotherealeconomy.HigherlevelsofGDPgrowthshouldbegoodforcorporateearningsandalso,allotherthingsbeingequal,forrawmaterialprices.Similarly,ahighlevelofliquidityinthemarketssupporDng

147、equitypricesthesituaDonformuchofthepastdecadeoughtalsotobuoycommodityprices.Ontheotherhand,silversresidualsafehavenproperDeswouldpresumablycometotheforewhenmarketsarein“riskoff”mode,suggesDnganegaDvecorrelaDonwithstockprices.Thedatafortheperiod2010-23broadlysupportthetheoryoutlinedabove.Under“normal

148、”circumstancesofeconomicexpansionsilverdoesappeartohaveafairlystrongcorrelaDonwithstockprices,inthiscasetheS&P500index.Moreover,akerwaninginthesecondhalfofthelastdecade,thiscorrelaDonappearstohavebecomestrongeroverthepastthreeyears.However,thetendencyfortheretobeamoderateposiDvecorrelaDonbetweenUSst

149、ockpricesandsilverispunctuatedonanirregularbasisbyquarterswhenthecorrelaDonbecomesstronglynegaDve.ThesuggesDonwouldbethatattheseDmessilverisbehavingasa“riskoff”assetand/orisbeingstronglyinfluencedbyotherdriversthatcauseittodivergestronglyfromthedirecDontakenbythestockmarket.Disclaimer&Copyright,This

150、 Report is published by and remains the joint copyright of Precious MetalsInsights(PMI)and The Silver InsDtute.Although every effort has been made to 24undertakethisworkwithcareanddiligence,PMIandTheSilverInsDtutecannotguarantee the accuracy of any forecasts or assumpDons.Nothing in this ReportconsDtutes an offer to buy or sell securiDes and nor does it consDtute adviceconcerningthebuyingorsellingofinvestments.ItispublishedonlyforinformaDonalpurposes.PMIandTheSilverInsDtutedonotacceptresponsibilityfor anylossesordamagesarisingdirectlyorindirectlyfromtheuseofthisReport.25