Silver Set to Fall for a Third Straight Year



GFMS report

According to November’s Thomson Reuters GFMS report, the global silver mine supply is set to fall for a third consecutive year. The total silver supply is forecast to fall by close to 3% from the previous year to 1,014.4 million ounces in 2015. The fall is expected to be driven by flat mine production and reduced scrap return, which is supposed to fall by 5%. The net de-hedging of 12.6 million ounces of the metal has also played a hand in the supply crunch.

The annual physical deficit in 2015 is expected to reach 42.7 million ounces. The yearly deficit, however, does not have a short-term influence on the price of the precious metal. Deficits may give strength to silver in the long term.

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Since silver touched its 205-year peak of $18.30, the fall to its lowest mark of $13.60 has been pretty bumpy. The rise and fall in silver prices has led to a plunge in share prices of silver-mining companies such as Hecla Mining (HL), Coeur Mining (CDE), and Pan American Silver (PAAS). These three companies dropped by 33.5%, 53.2%, and 32.1%, respectively, in 2015. Together, they make up 3.5% of the price changes in the VanEck Vectors Gold Miners ETF (GDX). The GDX indicator has fallen by 27.6% in the past year. The ProShares Ultra Silver ETF (AGQ) has also been impacted by the fall in silver prices.

Demand components

The demand for silver used in electronics has seen a decline in 2015, further from the decline in 2011. This fall in 2015 is largely due to the weaker Chinese economy, which accounts for a total of 28% of silver used in fabricating electronics. The silver demand for jewelry fabrication in China has seen a drop of almost 25%.



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