Is the silver market of interest to the traders? Cheaper than gold, this asset would also be "undervalued" according to Étienne Dargent, director of GoldBroker. He assures that the grey metal has a strong potential and can represent a real alternative to bitcoin and gold.
The silver market has recently found itself at the centre of the news. Traders of the Reddit forum WallStreetBets (WSB) have decided to attack the grey metal. They have just made headlines, causing GameStop action to soar. A leap that inflicted massive losses on the big fish of Wall Street.
"Unlike what they did with GameStop, this time WSB members targeted the physical silver market and SLV ETF options [a financial instrument designed to faithfully replicate the movements of an index]. A massive wave of purchases took place on the weekend of January 29th, causing shortages at all physical silver dealers around the world. A phenomenon that was observed last year. But at that time it was due to logistical problems caused by the Covid crisis".
Étienne Dargent, director of GoldBroker.com, a precious metal dealer, assesses the scale of the recent event on the financial market through Sputnik's microphone. The price of silver briefly surpassed $30 an ounce on February 1, an eight-year record.
Although the #Reddit #WallStreetBets group is unlikely to beat the big guns - #BIS, #Fed & #Bullionbanks etc - they will act as a catalyst to set #Silver free from chronic manipulation. pic.twitter.com/euzKq3uQlD— Egon von Greyerz (@GoldSwitzerland) February 1, 2021
Since then, the price has caught its breath. On February 4th, it is evolving around $27 dollars.
"Without going into too many technical details, the Chicago Mercantile Exchange (CME) quickly announced an increase in hedging rates on silver futures contracts. At the same time, J.P. Morgan downgraded silver and mining companies, driving down the spot price of silver. Is this still a strategy of hedge funds and banks to lower the price of silver and avoid ending up in the same short squeeze situation as with GameStop? It's up to each individual to judge", says Étienne Dargent at Sputnik.
However, the expert notes that the price of physical silver is around +30% above the spot price of silver. "The buying pressure from WSB members, while having only a temporary effect on the silver spot price, has had an effect on the price of physical silver. If the buying pressure on physical products continues, this disconnection between the spot price and the selling price of physical silver may continue for some time," he continues.
"A VERY FAVORABLE SITUATION FOR THE INCREASE OF THE SPOT PRICE"
So, silver... a lucrative object of speculation? Not for the economist Philippe Herlin, who recently confided to Sputnik "not to believe in silver". "It is above all a commodity and its price is largely influenced by industrial demand," he said.
Indeed, silver is used as a driver in the manufacture of many products such as solar panels, wind turbines and other electronic equipment, reports Le Monde. According to the Daily Vesperal, China's good economic health plays an important role in the demand for grey metal: "After the air pocket, caused by the Chinese economy being put on hold in the spring of 2020 due to Covid-19, the price of industrial metals, which was affected for a while, has returned to growth. The revival of the country's production engine led by Xi Jinping has revived the machine".
Étienne Dargent does not share Philippe Herlin's analysis. He believes that industrial demand is likely to support the prices. He points out that the world production of physical silver is about one billion ounces per year and that industry absorbs about 700 million ounces per year.
"There are only 300 million ounces left available for investors, which is not much, on a global scale. All the more so as production is going to decline, as mines produce less silver. The industry cannot do without silver, on the contrary, with the transition to cleaner energies (solar, electric cars, etc.), the industrial demand for physical silver will strongly increase in the coming years", notes the expert. And to continue on a note of optimism:
"Add to this trend the growing interest in tangible assets in a context of inflationary monetary policies and you get a very favorable situation for silver prices to rise."
Silver would therefore be an attractive asset for small investors who could not afford to bet on gold or bitcoin, which are much more expensive. While an ounce of silver is around $30, an ounce of yellow metal is around $1,800. As for bitcoin, recently buoyed by a wave of euphoria, its rate exceeds $36,000.
Étienne Dargent points out that "silver is the only asset in the world whose price is 50% lower than it was in the 1980s". He notes that bitcoin is currently trading much higher than its record value and that gold, last August, saw its price pass the $2,000 per ounce mark for the first time.
"This is not to say that gold and bitcoin will not continue to rise, but we are already on historical highs for both assets. Conversely, silver has to double to its historic high of $50 per ounce. Silver is severely undervalued, which I believe represents an opportunity for investors," the expert concludes.