In Silver's Slide, Another Sign of Global-Growth Worries

06/02/19 02:27 PM EDT
By Amrith Ramkumar 

The price of silver has fallen to its lowest level relative to gold in more than 26 years, a sign of slowing global growth to analysts who use the relationship between the two metals to gauge momentum in the global economy.

As silver prices closed out a fourth consecutive monthly drop last week, the gold-to-silver ratio climbed to its highest point since March 1993, according to Dow Jones Market Data. A hybrid that functions as both a precious metal and an industrial commodity, silver has fallen nearly 6% this year and is 10% below its 2019 peaks on worries that slowing global growth will limit demand.

Last Tuesday, prices closed at their lowest level since late November before rebounding later in the week.

Analysts estimate industrial uses account for more than half of global silver consumption, so escalating tariffs in the U.S.-China trade dispute have dragged the metal down alongside other industrial materials used in manufacturing such as copper.

"Sentiment is fragile for the silver market," said Suki Cooper, precious-metals analyst at Standard Chartered. "It's facing challenges on the industrial side and macro side as well."

Similar worries have hurt copper, which has fallen 11% from its April peaks and closed Friday at its lowest level since mid-January. Oil prices and bond yields also have been under pressure, while the S&P 500 has slid 6.6% below its April 30 record to its lowest level since early March.

One of silver's primary uses is for semiconductors, and sales of the computer chips used in everything from smartphones to data centers have fallen recently amid trade tensions and uncertainty about Chinese demand, analysts say. Asia accounts for 57% of silver industrial demand, according to data from GFMS Refinitiv and UBS.

Stockpiles of many products used in manufacturing have risen recently as businesses await more clarity on global trade policy. Silver inventories have also climbed. Stockpiles held in CME Group Inc. approved facilities have risen nearly 70% since the start of 2017. Their recent advance so far this year has added to negative sentiment by signaling there is plenty of material available, investors say.

"A lot of producers and manufacturers are taking that into consideration, " said Maxwell Gold, director of investment strategy at Aberdeen Standard Investments. "That does impact the demand side of the equation."

Still, Mr. Gold said prices could rebound given how cheap silver is and if stock-market volatility pushes investors broadly back toward precious metals.

So far, gold and silver haven't gotten much of a boost from nervous investors, who have preferred to protect their portfolios from recent stock-market swings with U.S. Treasurys and the dollar. That trend has come with analysts projecting that the U.S. economy will weather higher tariffs more effectively than other countries, hurting commodities that are priced in dollars.

A stronger U.S. currency makes those assets more expensive for overseas buyers. The WSJ Dollar Index, which tracks the dollar against a basket of 16 other currencies, rose near its highest level of 2019 Wednesday before dropping later in the week.

Still, gold prices have generally held steady, rising slightly more than 2% for the year and pushing up the gold-to-silver ratio as silver stumbles.

"Investor indifference towards gold is amplified even more in silver," said Joni Teves, a precious metals strategist at UBS, in a recent note.

Hedge funds and other speculative investors increased net bearish bets on silver prices in five consecutive weeks through May 28, pushing them to their highest level since early October, Commodity Futures Trading Commission data show.

Holdings by silver exchange-traded funds have been roughly flat in recent months after falling significantly late last year and in January, according to data from UBS and Bloomberg. Coin sales around the world, a gauge of physical demand from individual investors, have also been weak in recent years, analysts say, contributing to the negative market momentum.

"It's really the technical and short-term investor side that's been lacking," Mr. Gold said.

Write to Amrith Ramkumar at amrith.ramkumar@wsj.com

 

(END) Dow Jones Newswires

June 02, 2019 14:27 ET (18:27 GMT)

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