Gold’s Rally & Silver’s Surge: A Deep Dive Into Market Dynamics

jewellery magazine

Sanjiv Arole, a bullion analyst, navigates the intricate forces propelling silver to prominence, even as gold continues its impressive rally. He examines the foundational elements driving the precious metals market and forecasts their journey through the remainder of the year.

Bajirao Peshwa, a celebrated warrior of the erstwhile Maratha Empire, was said to have never lost a battle in his lifetime. He fought around 40 battles in his over 20 years of warfare and never lost a single battle, he died before he turned 40. Bajirao Peshwa relied on speed, timing and surprise, with the thrust of his cavalry, to spread shock and awe in his opponents, ultimately causing panic in the enemy ranks. So much so, that the Mughal emperor at that time is said to have fled Delhi when he realised that Bajirao Peshwa was on his way to attack Delhi. In many ways the world of precious metals appears to have taken a leaf out of Bajirao’s battle history as precious metals’ armies have run amuck on the price front.

Consider the following: Gold started 2024 at $2,054.05 on 3rd January and climbed to an all-time high of $2,450.05 per ounce on 20th May, up 19.27%. In May alone, gold rose by about 6.2%. However, silver outperformed gold, jumping over 25% in May to $33.50 per ounce, marking a 44% increase from the start of the year. Silver is leading among precious metals in price gains. In contrast, platinum-group metals (PGMs) showed modest performance. Platinum rose by about 10% from $979 per ounce on 3rd January to $1,082 on 20th May. Palladium struggled, increasing only 1.76% from the start of the year, peaking at $1,095 on 15th March, and trailing platinum around $1,000 per ounce.

It is very evident that silver is the star performer in the first half of the year so far. Since the beginning of May it has outperformed most of its competitors – while silver surged by over 25% in May, gold advanced by 6.2% in the global markets in the same period. The Dow improved by around 3-4%, while locally the Sensex did not progress by much during the month. Even Bitcoins were floundering around 4% increase in prices. So, is the silver story just a flash in the pan? For, silver has been on the charge from the beginning of the year as well.  Let us try and look at the fundamentals underlying the silver story. The Silver Institute released its annual Silver Survey by Metals Focus in mid April. The salient features of that survey are given below to try and understand as to whether silver can sustain itself during the remainder of the year.

Silver demand exceeded silver supply in 2023 for the third consecutive year, thereby resulting in a deficit of 184.3 moz (5,732 tonnes). One of the major highlights of the demand story for silver was the more than anticipated demand for silver with photovoltaics growing by 64%, to a new record high of 654.4 moz (20,353 tonnes). The ongoing focus on green economy applications were largely responsible for the sharp increases that were seen even in 2022. Faster adoption of new-generation solar cells raised global electrical & electronic demand by around 20%. Other green applications too contributed to the gains.

However, in spite of all of the above, total silver demand fell by 7% to 1,195 moz (37,169 tonnes).  However, the fantastic gains made in the industrial demand was more than offset by the price sensitive demand for silver jewellery, silverware, etc., mainly from price-sensitive markets like India. The exceptionally high numbers from 2022 too contributed to decline in demand from these sectors. Moreover, it also implied that there was more to the high import numbers of over 9,000 tonnes from India than merely apportioning of demand into silverware, jewellery and investments in India. Globally, photographic demand continued to decline as before with an off take at just 27 moz (840 tonnes). The impact of digitization on emerging markets further accentuated the decline in silver requirements in the photographic sector.

After a record high demand in 2022, demand for silver jewellery fabrication fell by 13% to 203.1 moz (6,318 tonnes). Most of the losses were from India. Demand for silverware too declined by 25% to 55.2 moz (1,717 tonnes). It was a repeat of the jewellery story with record high numbers from 2022 and reduced demand from India being the main culprits. As far as investment in silver was concerned, after five consecutive annual gains, physical investment demand for silver fell sharply by nearly 30-33% to a 3-year low of 243.1 moz (7,562 tonnes). Germany led the way with a steep fall of around 73%, while India too bore the brunt with a 38% fall. While mining production fell by around 1%, recycling improved by 1% to account for 18% of the total supply of silver. The silver price grew by around 7% in 2023 and in 2024 till date it is already up by around 44% from the beginning of the year. As a result, the gold-silver ratio is around 76, the lowest in recent times and way below the 120-plus levels seen not so long ago.

In 2024, total silver supply should decrease by just around 1%. But, still 2024 too could see a large deficit amounting to 215.3 moz (around 6,697 tonnes). Significantly, this would be the second largest market deficit in more than 20 years. There are exciting prospects for silver demand from various new generation applications as well as expanding role in the energy transition. It is expected that silver will become an indispensible material as artificial intelligence (AI) rises. Uses of silver in AI include transportation, nanotechnology, biotechnology, healthcare, consumer wearables, computing and energy in data centres. In India, silver imports are reportedly being made more through India International Bullion Exchange (IIBX) than through importing banks. The agreement with UAE for concessional silver imports at a much lower import duty has resulted in a discount for private traders to source their imports through the IIBX. This could mean that UAE could emerge as one the primary source for silver imports in the current year.

As far as the PGMs are concerned, a recent J&M PGM report reveals some interesting points on the demand and supply of both platinum and palladium.

Platinum and palladium saw significant deficits in 2023, but prices for palladium and rhodium fell sharply due to ample market liquidity and negative sentiment. Russian sales to Hong Kong and mainland China supported PGM supplies, while other primary supplies were weak, and secondary recoveries hit a seven-year low. Global gasoline car production increased, boosting automotive PGM demand by 8%. Industrial platinum consumption was strong, especially in the glass sector. Overall, demand for platinum, palladium, and rhodium increased in 2023, but prices did not reflect these deficits.

Jerome Powell and the US Fed showed a cautious stance in the latest Federal Open Market Committee (FOMC) minutes, focusing on inflation and indicating they might allow only one or two rate cuts this year. While a rate hike wasn’t ruled out, negative economic data for gold, potential ceasefires in Ukraine, peace efforts between Hamas and Israel, and an ICJ directive to Israel regarding Gaza caused gold and other precious metals to lose value. Gold dropped sharply, now trading at $2,342 per ounce, down 4.61% from its all-time high of $2,450.50 per ounce on 20th May, 2024. Silver also fell over 8%, now at $30.90 per ounce. PGMs hovered around $1,000 per ounce, with palladium trailing platinum. So, is the bull rally over for the precious metals? Far from it! For, the FOMC minutes have merely sought to postpone the inevitable; the rate cuts are imminent and could open the floodgates for gold and silver. Only a total ceasefire on both the warfronts could cause gold (& silver) to pause. One thing is certain though, silver cannot go too far on its own. It simply has to piggy-back on gold.

Finally, there are many takers willing to bet on gold scaling $3,000 per ounce in 2024 as well as silver revisiting $50 per for the first time since April 2011. Can Jerome Powell still pull the rabbit out of his hat and push back gold? Seems highly unlikely as the Fed appears to have thrown its last roll of the dice!!

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