The iShares Silver Trust (NYSEArca:SLV) and ETFS Physical Silver Shares (NYSEArca:SIVR) are tumbling as both of the silver exchange traded products are lower by more than 6% over the past week. However, an important catalyst could come into play that could lift the white metal in the second half of this year.
Declining silver production could crimp supplies going forward, in turn lifting prices.
“2016 was the first year in more than a decade wherein the primary silver production (coming from mines either as a main product or a by-product credit) decreased. After seeing a total silver production of approximately 668 million ounces in 2007 increasing to 891 million ounces in 2015, we saw a (first) decrease to 886 million ounces in 2016,” reports ZeroHedge.
Some metals market observer see silver supply falling coupled with rising prices.
“Silver supply is expected to fall this year, but it won’t fall as hard as demand, according to a new report by a leading precious metals consultancy,” reports BullionVault. “This will widen the metal’s “major surplus” say London-based analysts Metals Focus. Yet it expects silver prices will rise for a second year running thanks to strong buying by institutional investors.”
Silver and other precious metals enjoyed safe-haven demand as the equities market plunged into a correction. The metal also maintained its momentum as the Federal Reserve lowered its interest rate outlook to only one or two hikes this year from a previously expected four rate hikes.
“Whilst the total demand for silver also decreased to 1.028 billion ounces, 2016 was the fourth consecutive year with a supply deficit. Sure, the deficit was just 21 million ounces, but that’s entirely due to the lower demanf for jewelry and investment purposes. As you can clearly see in the same table, the demand from those two end-uses was 519 million ounces in 2015, but fell to just 414 million ounces in 2016, a decrease of 105 million ounces,” according to ZeroHedge.
Looking ahead, the ongoing negative interest rate environment, with European and Japanese central banks cutting benchmark rates deeper into the red to promote growth, could push investors toward precious metals as a more stable store of wealth.
Moreover, unlike gold, silver sees much higher industrial demand. The precious metal enjoys heavy industrial demand that benefits from an expanding global economy.
For more information on the silver market, visit our silver category.