iShares Silver Trust (SLV): Silver Price Rallies Despite a Decrease in Global Production
- The $1.8 trillion budget deficit from President Biden’s $6 trillion budget proposal will add inflation into 2022.
- Global silver production declined 5.66% in 2020 against a 15% demand surge in 2021.
- The UK is expected to increase silver demand in 2021, with Britannia coin up 100% between March and April 2021.
iShares Silver Trust (NYSE: SLV) ETF closed at +1.20% on June 2, 2021, from the previous day trading at $26.15 a share. The ETF has dropped 6.54% since hitting the 52-week high of $27.98 on February 1, 2021. As of June 2, 2021, Comex Silver for July 2021 traded at +0.41% from the previous day at $28.320. On this trading day, silver-edged past gold (+0.05), palladium (+0.19), and high-grade copper at +0.35%.
July Comex Silver
Gains in silver are attributed to fears of inflation in the US, despite the view that it is only transitory. April 2021 saw inflation rise with consumer prices soaring 4.2% (year-on-year), highs last seen in September 2008, amid the global recession. The Fed is not in a hurry to raise interest rates and will allow inflation to surge above the 2% target. Investors have turned to precious metals as a value store, with silver production declining into 2021.
While inflation is considered transitory, President Biden's $6 trillion budget proposal in FY 2022 will carry a deficit of $1.8 trillion. After spending more than $5 trillion in managing the Covid-19 pandemic, the US is likely to see an increase in inflation by the end of 2021. The CPI is expected to hit levels above 4.5%.
Silver production and demand
Global production of silver from 2005-2020
The global silver production declined 5.66% in 2020 at 25,000 metric tons from a high of 26,500 metric tons in 2019. However, the global demand for silver is likely to increase by +15% in 2021, down from -10% in 2020. According to the Silver Survey total, global demand in 2021 will soar to 1.033 million ounces against the production of 1.056 million ounces. The bulk of the demand is expected to come from the industrial application at 524 million ounces. Mine production will also form an important supply element of the precious metal at 849 million ounces.
President Biden’s $6 trillion budget included $174 billion to be spent in boosting the electric vehicle (EV) market in the US. Although House Republicans have proposed a lower EV expenditure of $4 billion, infrastructural developments into 2022 will still form the bulk of silver consumption. Silver forms an integral component in the manufacture of electric cars, with 55 million ounces used annually. The production will also include charging stations with silver components as the precious metal is known for its green (clean energy) benefits.
The US ISM production index jumped 61.2 points in May 2021 from 60.7 a month earlier, indicating heightened manufacturing into Q3 2021. In the UK, profits for companies dealing with mining and house constructions surged after house prices increased by 11%. This increase pushed the FTSE 100 index to 7,129 (up 0.65%) on June 1, 2021, from a low of 7,083.
UK production volume of silver since 2007-2019
The production volume of silver in the UK stood at 130 kg in 2019 (+828.57%) from a low of 14 kg in 2016. Despite low production volumes, the UK’s silver demand in Q1 2021 surged 540% as compared to 2021. According to the Royal Mint, sales of the “Britannia 2021 coin,” dubbed the one-ounce-silver between March and April 2021, increased by 100% (year-on-year).
SLV ETF trading analysis
The SLV trading chart shows the ETF is on a V-shaped recovery rising from a low of 22.13, crossing its support line at 24.61. The 14-day RSI stood at 62.0772 due to an increase in buying momentum. There is a slight increase in trading volume at $26.15, with traders optimistic of a continual rise.
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