2020 SILVER MARKET OUTLOOK
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2 0 2 0 S I LV E R MARKET OUTLOOK
Copyright CPM Group LLC 2020. These reports are produced by CPM Group for distribution by Monex Deposit Company. The rights to distribution, reproduction, and redistribution rights are ceded to Monex Deposit Company by CPM Group for these reports. These reports are not for reproduction or retransmission without written consent of Monex Deposit Company. The intellectual content and property of these reports remain the property of CPM Group, and they are not for reproduction or retrans- mission without written consent of CPM Group. The views expressed within are solely those of CPM Group. Such infor- mation has not been verified, nor does CPM make any representation as to its accuracy or completeness. Any statements nonfactual in nature constitute only current opinions, which are subject to change. While every effort has been made to ensure that the accuracy of the material contained in the reports is correct, CPM Group cannot be held liable for errors or omissions. CPM Group is not soliciting any action based on it. Information contained here should not be relied on as specific investment or market timing advice. At times the principals and associates of CPM Group may have long or short positions in some of the markets mentioned here.
2020 Silver Market Outlook Page 1
Silver
The precious metals complex performed strongly during gold in cyclical upward moves in precious metals prices.
2019. In this strong price environment, silver was the While silver is not expected to put in this sort of a strong
weakest performing precious metal of 2019. To be fair, performance in the near future it should be expected in
silver prices were 15% higher at the end of 2019 than the medium term. This underperformance in silver
they were at the end of 2018. That compares with 19% prices provides medium to long term silver market
for gold, 23% for platinum, and 59% for palladium. investors a window of opportunity to capture the fore-
Even so, a 15% gain was a healthy increase for silver. casted upside in prices.
Silver is most closely correlated with gold among the The most important factor influencing silver prices is in-
precious metals. Looking at the yearend price gain it may vestor demand. While investors pay attention to silver’s
not seem like the silver prices meaningfully underper- supply and fabrication demand fundamentals, the factors
formed gold. The change in the annual average price and that have the greatest influence over investor sentiment
the gold:silver ratio show a different comparison. On an and action are broader financial market, macroeconomic,
annual average basis gold prices were 9.8% higher in and political issues: The same factors that largely influ-
2019 while silver prices were 3.2% higher. ence investor demand for gold. The disconnect in the
level of investor demand for the two metals last year de-
Meanwhile, the gold:silver ratio, which captures the price spite the same factors influencing investor demand leaves
relation between these two metals, rose over the course of a gap to be filled, which is tilted in favor of silver price
2019. The strongest gains were during the first half of the appreciation given its recent past underperformance to
year, with the ratio reaching an average of 92.6 in June, gold. Loosely speaking the current situation in gold and
up from 82.7 in December 2018. The ratio cooled off silver is akin to an arbitrage.
during the second half of the year, finishing the year at
83.9, as silver recovered value relative to gold. Strength Much of the gain in silver prices beginning in the middle
in the gold:silver ratio highlights silver’s weak perform- of 2019 have been driven by shorter term investors using
ance relative to gold. derivative instruments. These investors are two-way par-
ticipants in the market. They buy and sell, taking shorter
It is not unusual for silver to lag gold’s performance in term views toward holdings silver positions. These inves-
the early stages of a revival in the prices of these metals. tors tend to be more tactical in nature. That said, these
Silver has often initially lagged and later outperformed investors are not expected to exit the market in any
Silver Prices
Comex Silver Prices, Daily, From 1 January 2000 to 31 December 2019
$ / Oz $ / Oz
54 54
50 50
46 46
42 42
38 38
34 34
30 30
26 26
22 22
18 18
14 14
10 10
6 6
2 2
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19Page 2 2020 Silver Market Outlook
wholesale way, given the current macroeconomic and up in silver prices back in April and May 2011. Prices
political backdrop. rose sharply within a short period of time and fell just as
sharply in a shorter time. Such price movements are not
Demand from medium to long term physical silver inves- everyone’s cup of tea and may have scared some inves-
tors has been lackluster, meanwhile. For silver prices to tors away from this market. Most investors buy at the
rise forcefully and sustainably it will require these longer wrong time, when prices are nearing their peaks, and are
term silver investors to re-enter the market as larger vol- left holding an asset that lost value before they could get
ume buyers. out of their positions, because the price declines very rap-
Two relatively recent episodes in the silver market may idly as well. As mentioned before in this section, at
be deterring longer term investors from entering the mar- present there is an opportunity for medium and
ket forcefully at this time. Both of these factors have to longer term investors to enter the silver market and
do with silver investor psychology. The first was the run ride it higher significantly reducing the risk of buying
too high. The second factor that may be deterring longer
Monthly Gold/Silver Price Ratio Silver Market Balance
December 2019 Annual, Investment Demand Projected Thru 2020, Prices Thru 2019
$/O unce Million Ounces
Ratio Ratio 40 250
120 120 Net Additions Ne t Changes in Inventories
35 200
100 100 150
30
100
80 80
25 50
60 60 20 0
15 -50
40 40
Price (LHS) -100
20 20 10
-150
5 -200
0 0
72 76 80 84 88 92 96 00 04 08 12 16 Net Withdrawals
0 -250
60 63 66 69 72 75 78 81 84 87 90 93 96 99 02 05 08 11 14 17
Annual U.S. Mint Silver Coin Sales to Dealers
December 2019 Dealer Premia on U.S . Mint S ilver Coins
Million Ounces Daily Data through 31 Dec. 2019
50
45 35%
Silver American
40 30% Eagle
35 Silver 100 Oz. bar
30 25%
25 20%
20
15%
15
10 10%
5
5%
0
98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 0%
Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-192020 Silver Market Outlook Page 3
term investors from entering the market forcefully was Price Outlook
the short lived silver price rally of 2016, which was fol-
lowed by prices declines for around two and a half years. Silver prices are forecast to rise over the course of 2020,
supported by an uptick in both fabrication demand and
While U.S. and global growth has improved over the past investment demand. Silver prices have initial resistance
couple of years and is the strongest since the global re- at $18.50. CPM Group expects prices to settle above this
cession, it is very fragile growth, built on a lot of unsus- level at some point over the course of this year.
tainable measures such as ultra low interest rates and ac-
commodative monetary policy, and large government A stronger resistance level is positioned at $19.50 which
deficit spending in most parts of the world. There are is less likely to be broken in any sustained fashion at least
various political and economic risks at present which over the course of this year. For silver prices to break in a
could easily derail economic growth. Given this back- convincing fashion over this resistance level will require
drop, the lack of investor participation in the silver a meaningful deterioration in economic conditions, which
market could prove to be a missed opportunity for is not expected for the current year.
those longer term silver investors who are not buying
presently in the market.
Estimated Investment Demand by MajorInvestment Vehicle Silver's Shareof Global Financial Wealth
Mln O z Mln O z Percent
250 250 0.030%
Other
200 200
ETPs 0.025%
150 150
Coins
100 100 0.020%
50 50
0.015%
0 0
-50 -50 0.010%
-100 -100
0.005%
-150 -150
Ne t Inve stment Demand
-200 -200 0.000%
2003 2005 2007 2009 2011 2013 2015 2017 2019
90 00 02 04 06 08 10 12 14 16 18
Non-CommercialGross Long and S hort S ilver Positions
Disaggregated Non-Commercial S ilver Positions
Comex Futures & Options. Weekly Data, Through 24 Dec. 2019
Mln Ozs Comex Futures and Options. Weekly Data, Through 24 Dec. 2019
Mln Ozs
750 750 Mln O zs Mln O zs
650 650
550 550 750 Other Traders 750
Net Fund Position in Comex Long
450 Long 450 650 650
550 Money Managers 550
350 350
450 Net Position 450
250 250
350 350
150 150 250 250
50 50 150 150
-50 -50 50 50
-150 -150 -50 -50
-250 -250 -150 -150
-350 -350 -250 -250
-450 -450 -350 -350
-550 S hort -550 -450 -450
-650 -650 -550 Short -550
-750 -750 -650 -650
96 98 00 02 04 06 08 10 12 14 16 18 07 08 09 10 11 12 13 14 15 16 17 18 19Page 4 2020 Silver Market Outlook
A fair bit of political and economic uncertainty is ex- cord since 2008, when total supply stood at 915.5 million
pected over the course of the year, which is expected to ounces. Softness in silver prices is beginning to nega-
keep investors interested in silver, however, which should tively affect supply, which is most evident in primary
prevent prices from declining sharply. Prices have good mine supply and recovery of silver from scrap.
support at $16.80. Based on the expectation that silver
prices will spend much of 2020 in this trading range, the Weakness in mine supply over the past couple of years
annual average silver prices is forecast to reach $17.90, can be attributed to a combination of prolonged weakness
up 10.4% from 2018’s annual average. It would be the in silver prices, the lack of new silver projects in the
highest annual average since 2014. pipeline, and the shuttering and/or suspension of various
silver mining operations. The most prominent closure
Supply was the suspension of operations at the Escobal mine in
Guatemala in June 2017. Prior to having its mining li-
Total silver supply slipped to 943.6 million ounces in cense revoked, the Escobal mine was producing between
2019, down from 947.6 million ounces in 2018. The de- 20 million ounces and 21 million ounces of silver per
cline in total silver supply was driven by a decline in year. Following the closure of this mine, there have not
mine supply, with secondary supply essentially flat year- been sufficient new mines that came onstream to fill the
on-year. Total supply during 2019 was the lowest on re- gap that Escobal left behind. New silver mine capacity
Total Annual S ilver S upply
Annual Additions to S ilver Mine Capacity from Near-Term Mine
Projected Through 2020
Million Ounces Million Ounces Development Projects
1,100 1,100
Million Ounces
1,000 1,000 40
900 Net Exports from Tran. 900 35
800 Government Disposals 800
30
700 S econdar 700
600 600 25
500 500 20
400 400 15
300 300
10
200 200
Mine Production 5
100 100
0 0 0
78 81 84 87 90 93 96 99 02 05 08 11 14 17 20p 2013 2014 2015 2016 2017 2018 2019
Annual S econdary Supply
Total Annual S ilver S upply Projected Through 2020
Projected Through 2020 Million Ounces
Million Ounces Million Ounces
900 900 400
South Asian Exports
800 800 350
Indian Scrap
700 700 300 Demonetized Coins
600 600 Old Scrap
250
500 500
200
400 400
150
300 300
200 200 100
100 100 50
0 0 0
78 81 84 87 90 93 96 99 02 05 08 11 14 17 20p 77 80 83 86 89 92 95 98 01 04 07 10 13 16 192020 Silver Market Outlook Page 5
that came onstream during 2018 and 2019 stood at 4.9 Relatively weaker economic conditions during the year
million ounces and 3.5 million ounces respectively. weighted slightly on silver jewelry and silverware de-
mand, while relatively soft silver prices during the first
Fabrication Demand half of the year helped support to some degree demand
Silver fabrication demand continued to rise during 2019, from this sector. While demand was down from 2018
reaching 929.3 million ounces. This was the highest level levels it still was the second highest level of demand
of silver fabrication demand since 2005. from this sector.
Fabrication demand was helped most by growth Following the sharp run up in semiconductor demand
in demand from electronics, solar panels, and during 2018, there was a cyclical slowdown in demand
biocides. during the first quarter of 2019. Demand recovered over
Silver demand from the jewelry sector was essen- the balance of the year, however, with demand rising
tially flat during 2019 at 305.8 million ounces, 1.8% to 238.2 million ounces. In addition to consumer
down 0.6% from 2018. electronics and the auto industry, presently the largest
sources of silver demand from this industry, the ongoing
Annual Fabrication Demand
Projected Through 2020 Annual Total Jewelry and SilverwareDemand
Million Ounces Million Ounces Projected Through 2020
1,000 Photovoltaic 1,000 MlnOz
350 South America
900 Imports into Trans Economies 900
Other Countries Oceania
800 800 300 North & Central America
Other Uses
700 Biocides 700 Europe
250
Asia & Middle East
600 Superconductors 600
Electronics 200
500 500
400 Jewelry 400 150
and
300 S ilverware 300 100
200 200
50
100 Photography 100
0 0 0
77 80 83 86 89 92 95 98 01 04 07 10 13 16 19 80 83 86 89 92 95 98 01 04 07 10 13 16 19
S ilver Demand for Electronics and Batteries World S emiconductor S ales Growth
Monthly, Jan. 2001 to November 2019
Million Ounces Million Ounces
70%
250 250
50%
200 200
30%
150 150
10%
100 100
-10%
50 50 -30%
0 0 -50%
89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19 Jan-01 Jun-03 Nov-05Apr-08 Sep-10 Feb-13 Jul-15 Dec-17Page 6 2020 Silver Market Outlook
growth in industries likely artificial intelligence and ro- in these cells weighed heavily on demand for the metal.
botics are expected to introduce an array of new products Targeted efforts to reduce the amount of precious metal
and uses which will require silver use in semiconductors used in various fabricated products is commonplace
and propel demand from this sector higher in coming across fabricated products that use precious metals and
years. solar panels are no exception.
Silver demand from solar panels continued to rise during Total silver fabrication demand is forecast to continue
2019, but the rate of growth has slowed sharply in recent rising in 2020, with total silver fabrication demand fore-
years. Silver demand from this source stood at a record cast to reach 945 million ounces. This increase in demand
101.6 million ounces in 2019. Production of solar panels is expected to be driven by growth in demand across sec-
has been on the rise, which is supportive of silver de- tors that use silver.
mand. However, ongoing thrifting of per-unit silver use
Multi-Crystalline S ilicon Module Overall Average S pot Price
Annual Silver Demand for PhotovoltaicSolar Panels
Weekly, Through 30 December 2019
Mln Oz Mln Oz
120 120
$/Watt
1.60
100 100 1.40
1.20
80 80 1.00
0.80
60 60
0.60
40 40 0.40
0.20
20 20
0.00
Sep-09 Sep-11 Sep-13 Sep-15 Sep-17 Sep-19
0 0 Note: Average price is f or solar panel modules of 156 mm side and 180 - 200
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 1920p micron thickness. Source: B loomberg
S ilver Demand for Ethylene Oxide Production Catalysts
Mln Oz Mln Oz S ilver Fabrication Demand for Photography
25 25
Replacement Demand Projected Through 2020
New Demand Million Million
20 20 300 300
Ounces
Graphic
250 250
15 15
200 200
10 10 X-ray
150 150
5 5
100 100
0 0 50 50
90 'New
Note: 93Demand'
96 represents
99 02 silver
05demand
08 for11 14 17
new production
capacity addedto global ethylene oxide production capacity. Basic Photography
'Replacement Demand' represents additional silver added to existing 0 0
capacity after refining losses. 89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 192020 Silver Market Outlook Page 7
S ilver S upply and Demand Balance Monthly S ilver Price S easonality
Annual Data, Projected Through Historical Average Since 1992
2020 S easonal Strength S easonal Strength
Million Ounces
106 106
Million Ounces 1,100
1,100 104 104
1,000
1,000 102 102
900 900
Fabrication Demand 100 100
800 800
98 98
700 700
600 600 96 96
S upply 94 94
500 500
400 400 92 92
300 300 90 90
200 200 88 88
60 67 74 81 88 95 02 09 16 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov DecPage 8 2020 Silver Market Outlook Silver Statistical Position Million Ounces Supply 2012 2013 2014 2015 2016 2017 2018 2019 2020p Mine Production Mexico 147.9 157.5 164.1 172.6 173.9 173.4 183.5 172.9 173.1 China 122.2 131.8 135.0 136.3 140.2 137.4 136.0 137.1 138.2 Peru 111.9 118.1 121.4 131.9 137.4 138.4 135.3 138.2 139.8 Australia 57.9 59.2 59.4 46.0 45.6 36.0 35.6 35.6 35.5 United States 33.8 33.8 37.3 35.0 36.0 33.0 28.4 28.7 28.7 Canada 22.7 19.9 15.9 12.3 12.4 12.5 11.6 12.1 12.1 Other 222.5 231.6 264.8 274.2 276.6 236.9 215.7 218.1 214.2 Total 718.8 751.8 797.9 808.5 822.0 767.6 746.1 742.6 741.7 % Change Year Ago 5.9% 4.6% 6.1% 1.3% 1.7% -6.6% -2.8% -0.5% -0.1% Secondary Supply Old Scrap 273.8 221.0 205.5 195.4 191.9 190.1 189.5 188.1 206.5 Coin Melt 1.0 1.0 1.5 1.5 1.5 1.5 1.5 1.5 1.5 Other Supply 1.0 Indian Scrap 8.0 8.0 8.0 8.1 9.6 10.4 10.5 11.4 12.0 Total 283.8 230.0 215.0 205.0 203.0 202.0 201.5 201.0 220.0 % Change Year Ago 0.8% -19.0% -6.5% -4.7% -1.0% -0.5% -0.2% -0.2% 9.5% Other Supply Government Disposals 0 0 0 0 0 0 0 0 0 Net Exports from Transitional Economies 1 0 0 0 0 0 0 0 0 Total 1.0 0 0 0 0 0 0 0 0 % Change Year Ago -77.5% -100.0% N/M N/M N/M N/M N/M N/M N/M Total Supply 1,002.6 981.8 1,012.9 1,013.5 1,025.0 969.6 947.6 943.6 961.7 % Change Year Ago 4.4% -2.1% 3.2% 0.1% 1.1% -5.4% -2.3% -0.4% 1.9% Fabrication Demand Photography 89.7 82.0 77.4 72.5 68.1 62.5 58.7 56.0 54.2 Jewelry & Silverware 238.8 266.7 279.4 297.4 299.1 303.4 307.6 305.8 311.2 Electronics and Batteries 216.7 218.4 223.7 223.8 226.1 229.6 234.0 238.2 245.9 Solar Panels 41.2 47.6 50.4 59.2 77.3 97.7 98.5 100.1 102.5 Other Uses 209.1 212.7 213.8 214.5 216.7 220.3 221.8 223.6 223.6 Other Countries 9.0 9.5 9.7 5.0 5.0 5.5 5.5 4.0 5.5 Total Fabrication Demand 804.4 836.8 854.4 872.3 892.5 918.9 926.1 927.8 942.9 % Change Year Ago -2.0% 4.0% 2.1% 2.1% 2.3% 3.0% 0.8% 0.2% 1.6% *Million Ounces; Notes: Totals may not equal the sum of categories due to rounding. Mine production in Poland, Bulgaria, Romania, Hungary, the Czech Republic, and Slovakia is included in "other" mine production; Photography, jewelry and silverware, electronics, solar panels, and 'other' industrial use reflects demand in Europe, the United States, and Japan.; These sectors include Canada from 1979, Mexico from 1982, Hong Kong from 1985, Thailand from 1986, India from 1987, Australia, Brazil, Peru, Colombia, Argentina, Chile, Korea, Pakistan, and Bangladesh from 1989, China from 2000, and Taiwan from 1990; Demand excludes the transitional economies, except for imports.; There may be discrepancies due to rounding; p - projections; NM - Not meaningful; Source: CPM Group
Published 2/1/2020 CPM Group LLC CPM Group is a fundamentally based commodities research shop. We develop our own proprietary estimates of gold, silver, platinum, and palladium supply and demand on a global basis, drawing on every resource we can find, including our own extensive list of contacts involved in precious metals around the world. We have been doing this sort of research and analysis since the 1970s, far longer than anyone else in the business. We also undertake research in specialty metals, base metals, energy and agricultural commodities. We are known for our basic fundamental research, a wide range of finan- cially oriented consulting services, and our expertise in using financial derivatives to structure financing for producers, refiners, industrial users, and investors interested in either hedging or investing in commodities. Our investment phi- losophy is simple: We are value investors who base our decisions on what to buy, sell, hold, or avoid on the fundamentals of each asset, and the macro-economic, financial and political environmental factors that we expect will affect that as- set’s value. We have concerns, expressed in this report and elsewhere, about long-term imbalances in government deficit spending, public and private debt, and a wide range of other economic and political factors. We don’t expect the world’s financial system to collapse, however. That is not the way the world tends to work. More likely economic outcomes in the real world lie between the extremes of cataclysmic collapses and nirvana. We advise our clients – and practice what we preach – to have some of their wealth in gold and silver as an insurance policy against a catastrophic failure, but we also advise them to invest other portions of their money in precious metals and other assets based on the assumption that that sort of failure does not occur. We focus on investing based on likely scenarios, but with an eye always open to outlying events that take the world’s markets by surprise. We have watched investors who were so worried about a collapse that they missed some of the largest stock and bond market rallies of all times over the past 30 years, while watching their safe haven assets fluctuate eight-fold in value up and down, and then up and down again. We prefer our clients to buy and sell precious metals and other assets based on cyclical and other developments, while also maintaining that long-term insur- ance policy in case the levee breaks. CPM Group LLC 168 7th St. Suite 310 Brooklyn, NY 11215 USA T. 1-212-785-8320 www.cpmgroup.com info@cpmgroup.com
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