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[institutional Research Daily] Bai Yinfei went to the altar: how long can it go up by more than 15% in three days?
Jul 23,2020 14:41CST
Source:Mainland futures
The content below was translated by Tencent automatically for reference.

SMM News: first, from a disk point of view

From July 21 to press release, silver's main contract soared from 4599 to 5320, with the highest rising to 5442, a cumulative increase of 15.78 per cent. When trading opened on July 20, international spot silver rose more than 7% at one point, setting a new high of 22.83 US dollars per ounce since the end of 2013. All Shanghai silver contracts opened on the daily limit, with a one-day increase of 7.99%.

Second, macro view

Generally speaking, we think that silver and gold are both precious metals, silver has both financial properties of gold, and the correlation coefficient between the two prices since 1968 is 0.925. From the perspective of financial attributes, silver is logically negatively correlated with the dollar index and the real interest rate in the United States. And from the previous periods of both prices, the price elasticity of silver is greater than that of gold.

Judging from the historical data, the average value of the "gold-silver price ratio" is 75 / 85 in recent years. When it deviates greatly from the average value, it will realize the mean regression. The repair of the "gold-silver price ratio" is completed when the silver price increases more than the gold price. At present, as the economy enters the repair stage, the physical demand for silver (including industry and investment) will gradually pick up, and the upward window for silver prices is expected to open. The most recent gold-silver ratio repair occurred from February 29, 2016 to July 14, 2016, with a repair period of 136 days. The gold-silver ratio was revised down from 83.20 to 65.79, a change of 20.93%, during which gold prices rose 8% and silver rose 36%.

Logically, continuing tensions in Sino-US relations have boosted risk aversion, causing money to flow rapidly into the precious metals market. Yesterday afternoon, there was a sudden news that the Chinese Consulate in Houston had been asked by the United States to close before 4: 00 p.m. on Friday, and that the staff of the Consulate had been asked to leave. The Ministry of Foreign Affairs also said at a news conference yesterday afternoon that Chinese diplomats in the United States had recently received bombs and death threats. The tense relationship between China and the United States was instantly reignited.

At the same time, according to the statistics of Johns Hopkins University in the United States, as of the 23rd in Beijing, there were more than 15 million confirmed cases of new crown pneumonia worldwide, reaching 15000424 cases, and a total of 617832 deaths. The cumulative number of confirmed cases of new crown pneumonia in the United States is the largest in the world, with more than 3.9 million cases and more than 143000 deaths. The economic impact of this outbreak in the United States is significantly different from that of the first round. The first outbreak of the epidemic in the United States occurred between the end of March and April. At this stage, due to the blockade policy adopted by the United States, many states announced a shutdown, so the impact on the supply side was greater than that on the demand side. As a result, the US economy was mainly in short supply in April, and the decline in the growth rate of imports was lower than that of exports. However, in the second outbreak in the United States since mid-June, as Republican states are not expected to adopt a shutdown policy, they will only suspend the resumption of work and impose restrictions on consumer industries such as catering and entertainment. as a result, the impact of the epidemic on the demand side is greater than on the supply side. From this point of view, China's exports to the United States may be under pressure in the third quarter. Therefore, with the increase of macro demand for risk aversion, the demand for risk aversion of precious metals will be further reflected.

III. Fundamentals

Silver has both industrial and financial attributes, and its industrial demand accounts for about 60%. After the recent sudden shutdown of production at two mines in Peru, silver producer Pan American Silver announced on July 20 that it had tested positive for new crowns of workers in its Peruvian Walloon and Morococa mines, so it decided to suspend operations in the two mines. It is reported that in 2019, the two silver mines produced 6.3 million ounces of silver, accounting for 25 per cent of the company's silver production. After the news broke, the market worried about the future supply of silver, which contributed to the rapid rise of silver on the news.

Silver supply has shrunk slowly since 2011, with an average annual growth rate of-1% and an average annual compound growth rate of-0.82% from 2011 to 2019. The supply of silver comes from mine production, government net selling, recycled silver and producer hedging, mainly mine production and recycled silver. In 2018, the total supply of silver was 1004.3 million ounces, of which mines produced 855.7 million ounces, accounting for 85%; recycled silver accounted for 151.3 million ounces, accounting for 15%. GFMS expects global mineral silver production to grow 0.9 per cent to 26868 tonnes in 2019 and 0.6 to 4737 tonnes for recycled silver. The global spot supply of silver in 2019 was basically the same as in 2018, with a slight increase of 0.9 per cent to 31605 tons.

The existing forms of silver resources include independent silver ores and associated ores, of which more than 2/3 are associated minerals, and most of them are associated with four kinds of metals: lead, zinc, copper and gold. In 2018, independent silver deposits accounted for only 26% of the global mineral silver, while associated silver deposits dominated by lead, zinc, copper and gold accounted for more than 70%. However, since 2018, copper, lead and zinc prices have been in a downward channel, restraining metal miners' enthusiasm for copper and lead-zinc mining, and the growth of by-product silver production is limited, making it difficult to stimulate silver production. And exploration, equipment procurement, production will take a certain period of time, in recent years, mine profits narrowed, capital expenditure is tight, the future supply of silver is expected to show zero growth.

From the demand side, the demand for silver can be divided into industrial demand, consumer demand such as jewelry and jewelry, and seals with investment attributes. The first major area of demand is industrial demand, which accounts for about 50% Mel 60%, of which the electronic and electric power industry, photovoltaic industry and welding alloy industry account for a relatively large proportion; the second largest demand area is silver jewelry, accounting for about 20%. Jewelry demand has remained relatively stable in recent years; the third largest area is seals with investment attributes, accounting for about 18%, whose demand is greatly affected by silver price fluctuations.

According to statistics, the global spot demand for silver fell 0.5% to 31985 tons in 2019 compared with the same period last year. Overall, the growth rate of silver consumption is not obvious in recent years, in the context of the Sino-US trade war and the global economic downturn, silver for electronics, electrical and solder has declined, and the photovoltaic field can be used as a development trend in the next 3-5 years. The demand for silver jewelry is usually inversely proportional to the price of silver. India, Thailand, China and Italy are the top four consumers in the world, steadily rising, while investment demand is related to the fluctuation of silver prices. for example, prices rose rapidly in 2010 and 2011, and fell rapidly in 2013 and 2015, all of which led to rapid growth in consumption of silver coins and bars.


Recently, Huaqi Bank said it was only a matter of time before the price of precious metals such as gold broke through the all-time high, and it is expected that within the next nine months, the price of gold will break the record high of $1921.17 per ounce set in 2011; in the next five years, there is a 30% chance that it will exceed $2000 per ounce. The price of silver will exceed $25 per ounce in the next six months, and the most optimistic scenario will exceed $30 per ounce.

We also believe that the current epidemic continues to be difficult to control and the uncertainty of Sino-US relations has outweighed the short-term rise in risk appetite to boost gold prices, and precious metals are expected to enter the concussive upward channel before there is a major breakthrough in the vaccine. Second, the ultra-loose monetary policy of the Federal Reserve has led to rising market expectations for future inflation, and gold has further appreciated against the US dollar. in the medium to long term, the investment value of precious metals will be more prominent in the global environment of low interest rates. promote medium-and long-term precious metal prices to continue to rise.

At the same time, we note that the current gold and silver price has been restored to a new low since March, to around 82, according to the historical data 75mur90 gold and silver price range, the room for arbitrage is already limited, and then the trend of gold and silver will converge upward. There is still plenty of room for further gains.

Investment advice: short-term silver price increases are expected to converge, but affected by the news side, the trend will still be stronger than gold, gold and silver anti-sleeve space still exists, COMEX silver main operating range in 22Mel 25, Shanghai silver main operating range in 5250Mel 5800. It is recommended to do more in bargain hunting. To maintain the bullish thinking in the medium and long term, it is recommended that the long-term contract should be held continuously.

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