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For more information on silver, and how specific gold, silver, palladium and platinum investments may be used to
diversify your portfolio, please contact:
2 0 2 0 S I L V E R M A R K E T O U T L O O K
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.
Page 1 2020 Silver Market Outlook
Silver The precious metals complex performed strongly during 2019. In this strong price environment, silver was the weakest performing precious metal of 2019. To be fair, silver prices were 15% higher at the end of 2019 than they were at the end of 2018. That compares with 19% for gold, 23% for platinum, and 59% for palladium. Even so, a 15% gain was a healthy increase for silver.
Silver is most closely correlated with gold among the precious metals. Looking at the yearend price gain it may not seem like the silver prices meaningfully underper-formed gold. The change in the annual average price and the gold:silver ratio show a different comparison. On an annual average basis gold prices were 9.8% higher in 2019 while silver prices were 3.2% higher.
Meanwhile, the gold:silver ratio, which captures the price relation between these two metals, rose over the course of 2019. The strongest gains were during the first half of the year, with the ratio reaching an average of 92.6 in June, up from 82.7 in December 2018. The ratio cooled off during the second half of the year, finishing the year at 83.9, as silver recovered value relative to gold. Strength in the gold:silver ratio highlights silver’s weak perform-ance relative to gold.
It is not unusual for silver to lag gold’s performance in the early stages of a revival in the prices of these metals. Silver has often initially lagged and later outperformed
gold in cyclical upward moves in precious metals prices. While silver is not expected to put in this sort of a strong performance in the near future it should be expected in the medium term. This underperformance in silver prices provides medium to long term silver market investors a window of opportunity to capture the fore-casted upside in prices.
The most important factor influencing silver prices is in-vestor demand. While investors pay attention to silver’s supply and fabrication demand fundamentals, the factors that have the greatest influence over investor sentiment and action are broader financial market, macroeconomic, and political issues: The same factors that largely influ-ence investor demand for gold. The disconnect in the level of investor demand for the two metals last year de-spite the same factors influencing investor demand leaves a gap to be filled, which is tilted in favor of silver price appreciation given its recent past underperformance to gold. Loosely speaking the current situation in gold and silver is akin to an arbitrage.
Much of the gain in silver prices beginning in the middle of 2019 have been driven by shorter term investors using derivative instruments. These investors are two-way par-ticipants in the market. They buy and sell, taking shorter term views toward holdings silver positions. These inves-tors tend to be more tactical in nature. That said, these investors are not expected to exit the market in any
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Silver Prices
$ / O z
Comex Silver Prices, Daily, From 1 January 2000 to 31 December 2019$ / O z
Page 1 2020 Silver Market Outlook
Silver The precious metals complex performed strongly during 2019. In this strong price environment, silver was the weakest performing precious metal of 2019. To be fair, silver prices were 15% higher at the end of 2019 than they were at the end of 2018. That compares with 19% for gold, 23% for platinum, and 59% for palladium. Even so, a 15% gain was a healthy increase for silver.
Silver is most closely correlated with gold among the precious metals. Looking at the yearend price gain it may not seem like the silver prices meaningfully underper-formed gold. The change in the annual average price and the gold:silver ratio show a different comparison. On an annual average basis gold prices were 9.8% higher in 2019 while silver prices were 3.2% higher.
Meanwhile, the gold:silver ratio, which captures the price relation between these two metals, rose over the course of 2019. The strongest gains were during the first half of the year, with the ratio reaching an average of 92.6 in June, up from 82.7 in December 2018. The ratio cooled off during the second half of the year, finishing the year at 83.9, as silver recovered value relative to gold. Strength in the gold:silver ratio highlights silver’s weak perform-ance relative to gold.
It is not unusual for silver to lag gold’s performance in the early stages of a revival in the prices of these metals. Silver has often initially lagged and later outperformed
gold in cyclical upward moves in precious metals prices. While silver is not expected to put in this sort of a strong performance in the near future it should be expected in the medium term. This underperformance in silver prices provides medium to long term silver market investors a window of opportunity to capture the fore-casted upside in prices.
The most important factor influencing silver prices is in-vestor demand. While investors pay attention to silver’s supply and fabrication demand fundamentals, the factors that have the greatest influence over investor sentiment and action are broader financial market, macroeconomic, and political issues: The same factors that largely influ-ence investor demand for gold. The disconnect in the level of investor demand for the two metals last year de-spite the same factors influencing investor demand leaves a gap to be filled, which is tilted in favor of silver price appreciation given its recent past underperformance to gold. Loosely speaking the current situation in gold and silver is akin to an arbitrage.
Much of the gain in silver prices beginning in the middle of 2019 have been driven by shorter term investors using derivative instruments. These investors are two-way par-ticipants in the market. They buy and sell, taking shorter term views toward holdings silver positions. These inves-tors tend to be more tactical in nature. That said, these investors are not expected to exit the market in any
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Silver Prices
$ / O z
Comex Silver Prices, Daily, From 1 January 2000 to 31 December 2019
$ / O z
Page 2 2020 Silver Market Outlook
up in silver prices back in April and May 2011. Prices rose sharply within a short period of time and fell just as sharply in a shorter time. Such price movements are not everyone’s cup of tea and may have scared some inves-tors away from this market. Most investors buy at the wrong time, when prices are nearing their peaks, and are left holding an asset that lost value before they could get out of their positions, because the price declines very rap-idly as well. As mentioned before in this section, at present there is an opportunity for medium and longer term investors to enter the silver market and ride it higher significantly reducing the risk of buying too high. The second factor that may be deterring longer
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25
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40
45
50
98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19
Million Ounces
Annual U.S. Mint Silver Coin Sales to Dealers
December 2019
-250
-200
-150
-100
-50
0
50
100
150
200
250
0
5
10
15
20
25
30
35
40
60 63 66 69 72 75 78 81 84 87 90 93 96 99 02 05 08 11 14 17
Million Ounces$/O unce
Price (LHS)
Net Changes in Inventories Net Additions
Net Withdrawals
Silver Market BalanceAnnual, Investment Demand Projected Thru 2020, Prices Thru 2019
0
20
40
60
80
100
120
0
20
40
60
80
100
120
72 76 80 84 88 92 96 00 04 08 12 16
wholesale way, given the current macroeconomic and political backdrop.
Demand from medium to long term physical silver inves-tors has been lackluster, meanwhile. For silver prices to rise forcefully and sustainably it will require these longer term silver investors to re-enter the market as larger vol-ume buyers.
Two relatively recent episodes in the silver market may be deterring longer term investors from entering the mar-ket forcefully at this time. Both of these factors have to do with silver investor psychology. The first was the run
Monthly Gold/Silver Price Ratio
Ratio Ratio
December 2019
0%
5%
10%
15%
20%
25%
30%
35%
Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19
Silver AmericanEagleSilver 100 Oz. bar
Dealer Premia on U.S . Mint S ilver Coins Daily Data through 31 Dec. 2019
Page 3 2020 Silver Market Outlook
term investors from entering the market forcefully was the short lived silver price rally of 2016, which was fol-lowed by prices declines for around two and a half years.
While U.S. and global growth has improved over the past couple of years and is the strongest since the global re-cession, it is very fragile growth, built on a lot of unsus-tainable measures such as ultra low interest rates and ac-commodative monetary policy, and large government deficit spending in most parts of the world. There are various political and economic risks at present which could easily derail economic growth. Given this back-drop, the lack of investor participation in the silver market could prove to be a missed opportunity for those longer term silver investors who are not buying presently in the market.
Price Outlook
Silver prices are forecast to rise over the course of 2020, supported by an uptick in both fabrication demand and investment demand. Silver prices have initial resistance at $18.50. CPM Group expects prices to settle above this level at some point over the course of this year.
A stronger resistance level is positioned at $19.50 which is less likely to be broken in any sustained fashion at least over the course of this year. For silver prices to break in a convincing fashion over this resistance level will require a meaningful deterioration in economic conditions, which is not expected for the current year.
-750-650-550-450-350-250-150-5050150250350450550650750
-750-650-550-450-350-250-150-5050
150250350450550650750
96 98 00 02 04 06 08 10 12 14 16 18
Long
Short
Net Fund Position in Comex
Mln Ozs
Non-Commercial Gross Long and Short S ilver Positions
Comex Futures & Options. Weekly Data, Through 24 Dec. 2019 Mln Ozs
-200
-150
-100
-50
0
50
100
150
200
250
-200
-150
-100
-50
0
50
100
150
200
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2003 2005 2007 2009 2011 2013 2015 2017 2019
Other
ETPs
Coins
Net Investment Demand
Estimated Investment Demand by Major Investment Vehicle
Mln O z Mln O z
-650-550-450-350-250-150-5050150250350450550650750
-650-550-450-350-250-150-5050
150250350450550650750
07 08 09 10 11 12 13 14 15 16 17 18 19
Other Traders
Money Managers
Net Position
Disaggregated Non-Commercial Silver Positions
Comex Futures and Options. Weekly Data, Through 24 Dec. 2019Mln O zs Mln O zs
Long
Short
0.000%
0.005%
0.010%
0.015%
0.020%
0.025%
0.030%
90 00 02 04 06 08 10 12 14 16 18
Silver's Share of Global Financial Wealth
Percent
Page 4 2020 Silver Market Outlook
A fair bit of political and economic uncertainty is ex-pected over the course of the year, which is expected to keep investors interested in silver, however, which should prevent prices from declining sharply. Prices have good support at $16.80. Based on the expectation that silver prices will spend much of 2020 in this trading range, the annual average silver prices is forecast to reach $17.90, up 10.4% from 2018’s annual average. It would be the highest annual average since 2014.
Supply
Total silver supply slipped to 943.6 million ounces in 2019, down from 947.6 million ounces in 2018. The de-cline in total silver supply was driven by a decline in mine supply, with secondary supply essentially flat year-on-year. Total supply during 2019 was the lowest on re-
cord since 2008, when total supply stood at 915.5 million ounces. Softness in silver prices is beginning to nega-tively affect supply, which is most evident in primary mine supply and recovery of silver from scrap.
Weakness in mine supply over the past couple of years can be attributed to a combination of prolonged weakness in silver prices, the lack of new silver projects in the pipeline, and the shuttering and/or suspension of various silver mining operations. The most prominent closure was the suspension of operations at the Escobal mine in Guatemala in June 2017. Prior to having its mining li-cense revoked, the Escobal mine was producing between 20 million ounces and 21 million ounces of silver per year. Following the closure of this mine, there have not been sufficient new mines that came onstream to fill the gap that Escobal left behind. New silver mine capacity
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1,000
1,100
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1,000
1,100
78 81 84 87 90 93 96 99 02 05 08 11 14 17 20p
Secondar
Mine Production
Million Ounces
Net Exports from Tran. Government Disposals
Projected Through 2020 Million Ounces
Total Annual S ilver Supply
0
50
100
150
200
250
300
350
77 80 83 86 89 92 95 98 01 04 07 10 13 16 19
South Asian ExportsIndian ScrapDemonetized CoinsOld Scrap
Projected Through 2020 Million Ounces
400
Annual Secondary Supply
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30
35
40
2013 2014 2015 2016 2017 2018 2019
Million Ounces
Annual Additions to S ilver Mine Capacity from Near-Term Mine
Development Projects
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100
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400
500
600
700
800
900
0
100
200
300
400
500
600
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800
900
78 81 84 87 90 93 96 99 02 05 08 11 14 17 20p
Million Ounces
Total Annual S ilver SupplyProjected Through 2020 Million Ounces
Page 5 2020 Silver Market Outlook
that came onstream during 2018 and 2019 stood at 4.9 million ounces and 3.5 million ounces respectively.
Fabrication Demand
Silver fabrication demand continued to rise during 2019, reaching 929.3 million ounces. This was the highest level of silver fabrication demand since 2005.
Fabrication demand was helped most by growthin demand from electronics, solar panels, andbiocides.
Silver demand from the jewelry sector was essen-tially flat during 2019 at 305.8 million ounces,down 0.6% from 2018.
Relatively weaker economic conditions during the year weighted slightly on silver jewelry and silverware de-mand, while relatively soft silver prices during the first half of the year helped support to some degree demand from this sector. While demand was down from 2018 levels it still was the second highest level of demand from this sector.
Following the sharp run up in semiconductor demand during 2018, there was a cyclical slowdown in demand during the first quarter of 2019. Demand recovered over the balance of the year, however, with demand rising 1.8% to 238.2 million ounces. In addition to consumer electronics and the auto industry, presently the largest sources of silver demand from this industry, the ongoing
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800
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1,000
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800
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77 80 83 86 89 92 95 98 01 04 07 10 13 16 19
Photovoltaic
Imports into Trans Economies
Other Countries
Other Uses
Biocides
Superconductors
Electronics
Million Ounces
Photography
Jewelry and
Silverware
Annual Fabrication Demand
Projected Through 2020 Million Ounces1,000
0
50
100
150
200
250
300
350
80 83 86 89 92 95 98 01 04 07 10 13 16 19
South America
Oceania
North & Central America
Europe
Asia & Middle East
Projected Through 2020 Mln Oz
Annual Total Jewelry and Silverware Demand
0
50
100
150
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50
100
150
200
250
89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19
Million Ounces
Silver Demand for Electronics and Batteries
Million Ounces
-50%
-30%
-10%
10%
30%
50%
70%
Jan-01 Jun-03 Nov-05Apr-08Sep-10 Feb-13 Jul-15 Dec-17
World Semiconductor Sales Growth
Monthly, Jan. 2001 to November 2019
Page 6 2020 Silver Market Outlook
growth in industries likely artificial intelligence and ro-botics are expected to introduce an array of new products and uses which will require silver use in semiconductors and propel demand from this sector higher in coming years.
Silver demand from solar panels continued to rise during 2019, but the rate of growth has slowed sharply in recent years. Silver demand from this source stood at a record 101.6 million ounces in 2019. Production of solar panels has been on the rise, which is supportive of silver de-mand. However, ongoing thrifting of per-unit silver use
in these cells weighed heavily on demand for the metal. Targeted efforts to reduce the amount of precious metal used in various fabricated products is commonplace across fabricated products that use precious metals and solar panels are no exception.
Total silver fabrication demand is forecast to continue rising in 2020, with total silver fabrication demand fore-cast to reach 945 million ounces. This increase in demand is expected to be driven by growth in demand across sec-tors that use silver.
Note: 'New Demand' represents silver demand for new production capacity addedto global ethylene oxide production capacity. 'Replacement Demand' represents additional silver added to existing capacity after refining losses.
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90 93 96 99 02 05 08 11 14 17
Replacement DemandNew Demand
Silver Demand for Ethylene Oxide Production Catalysts
Mln Oz Mln Oz
0
50
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150
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250
300
0
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100
150
200
250
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89 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19
Million Million Ounces
Basic Photography
X-ray
Graphic
S ilver Fabrication Demand for Photography
Projected Through 2020
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00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 1920p
Mln Oz Mln Oz
Annual Silver Demand for Photovoltaic Solar Panels
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
Sep-09 Sep-11 Sep-13 Sep-15 Sep-17 Sep-19
Multi-Crystalline Silicon Module Overall Average Spot Price
Weekly, Through 30 December 2019
$/Watt
Note: Average price is for solar panel modules of 156 mm side and 180 - 200 micron thickness. Source: Bloomberg
Page 7 2020 Silver Market Outlook
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1,000
1,100
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60 67 74 81 88 95 02 09 16
Supply
Fabrication Demand
Million Ounces
Silver Supply and Demand Balance Annual Data, Projected Through 2020
Million Ounces1,100
1,000
88
90
92
94
96
98
100
102
104
106
88
90
92
94
96
98
100
102
104
106
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Seasonal Strength
Monthly S ilver Price Seasonality Historical Average Since 1992
Seasonal Strength
Page 8 2020 Silver Market Outlook
Million Ounces
Silver Statistical Position
*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
Supply 2012 2013 2014 2015 2016 2017 2018 2019 2020pMine 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 5.5Total 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%
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 LLC168 7th St.Suite 310Brooklyn, NY11215USA
Published 2/1/2020
For more information on silver, and how specific gold, silver, palladium and platinum investments may be used to
diversify your portfolio, please contact:
MONEX DEPOSIT COMPANY 4910 BIRCH STREET
NEWPORT BEACH, CA 92660(800) 949-4653(949) 752-1400
MONEX
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