By Neils Christensen of Kitco News
Wednesday July 20, 2016 08:29
(Kitco News) - Silver is up 45% since the start of the year and although the metal is known for its wild swings, one industry executive said there is limited downside for the rest of the year.
September Comex silver futures are down Wednesday ahead of the North American equity open, last trading at $19.610 an ounce, down $0.397 on the day. The grey metal is the worst performer in the precious metals sector today.
Mitchell Krebs, CEO of Coeur Mining, Inc. (NYSE: CDE) and president of the Silver Institute, said that he expects the precious metals sector to attract more investor interest through the second half of the year, and silver is in the unique position to continue to outperform as it benefits as both an industrial metal and monetary metal. He noted that his company has seen significant gains this year as a result of the new bull trend in precious metals.
“I think, right now, silver is in this sweet spot and I think this trend can continue,” he told Kitco News in a phone interview Tuesday.
On the industrial side, Krebs said that he is optimistic silver demand will continue to grow as solar power expands in popularity.
“You look back a decade ago and around 5 million ounces of silver was used in solar panels,” he said. “This last year, I think it was 75 million ounces. Every new gigawatt of photovoltaic capacity that is installed consumes almost 3 million ounces of silver.”
While solar power has the potential to represent about 25% of the global silver market, Krebs noted that the market is a lot more balance and healthy compared to when the market mostly depended on photography demand.
“Silver is so unique because of the new uses people keep finding to more than offset the losses from photography demand. The market is a lot stronger and more diverse,” he said.
While industrial demand is an important component to silver prices, it is still overshadowed by investor demand,which is expected to continue breaking record levels this year.
“There are no two ways about it, investors just want precious metals right now. Gold gets a lot of attention but silver, with its price point, attracts a lot of average investors. In the U.S., there is almost an insatiable appetite for silver coins,” he said.
With global uncertainty expected to remain and grow in the marketplace and investors faced with a negative yielding bond market, Krebs said that he expects investment demand to trend higher in the medium term.
However, there is also a third factor that creates a bullish environment for silver, which Krebs said has been largely ignored by the market, and that is falling supply.
After almost a decade of supply growth, Krebs said that the silver market is expected to see its first contraction this year. He added that with companies cutting back exploration and production, it could take three years for new supply sources to come on line.
“You put the supply picture up against some of these positive demand characteristics and it sets up really nicely for gold and silver -- especially silver,” he said.
Of course, one negative to higher silver prices, especially in the industrial market, is the threat of thrifting,” which looks at ways of reducing the amount of silver or even outright substitution.