The Biden government’s stimulus measures to stimulate the US economy by creating jobs, many more Americans are getting vaccinated, rising US Treasury yields in the United States, a strong dollar and strong global stocks are the pushing factors for silver price correction so far in 2021..
Optimism in the US Economy
The United States added 1.6 million jobs in the first quarter of 2021, and the most jobs in seven months in March, making it the start of what could be the strongest economic performance for almost four decades. On the contrary, the jobs deficit is still huge and more than four million Americans have been unemployed for more than six months.
Estimates of gross domestic product for the first quarter are at an annualized rate of 10.0%. This year, growth could exceed 7%, which would be the fastest rate since 1984. The US economy contracted 3.5% in 2020, its worst performance in 74 years. In addition, the Federal Reserve has indicated that it will maintain its super-easy monetary policy for a while to allow a full recovery.
After a good performance in 2020, hedge funds lose their bets on money as shown in the following graph:
The net long positions in silver stand at 21,236 contracts at March 30, 2021 against 48,680 at December 21, 2020. The correction in
the prices of silver in the first quarter led hedge funds to reduce their exposure to the gray metal.
The brightest side of gray metal
Driven by industrial use and physical investment, global silver demand is expected to reach a six-year high of 1.025 billion ounces in 2021, according to analysis by The Silver Institute, released on February 10. 2021. Physical investment, which covers silver Bullion and bullion purchases are expected to reach a six-year high of 257 million ounces (Moz) in 2021, as investors continue to add the metal to their investments.
Already in 2021, holdings of exchange traded products reached a record high of 1.18 billion ounces on February 3. Industrial demand is expected to peak four years at 510 Moz in 2021, a 9% increase from 2020 figures. Global demand for silver jewelry is expected to rebound to 174 Moz but remain below pre-COVID levels. The use of silver in the auto market is also expected to rebound strongly in 2021, to just over 60 Moz, benefiting from the increasing electrification of vehicles, according to The Silver Institute.
What’s in store for the money now?
The metal’s volatility is a good recipe for traders to profit from price movements, and the momentum suggests that the level of Rs 70,000 per kg looks like a good possibility on MCX futures.
In international markets, $ 27 seems quite possible from a monthly point of view. The auto sector’s increased focus on demand, the rise in Covid infections around the world and the surge in central bank liquidity is a clear mix for silver prices to rise. We remain bullish on silver and “buy troughs” must be the clear strategy in gray metal.
(Prathamesh Mallya is AVP-Research Non-Agri Commodities and Monnaies, Angel Broking)