A correction on the financial markets is always annoying for buyers, as some of their book profits dissolve, at least temporarily. At the same time, however, corrections are always opportunities for those investors who wanted to enter the market but have not yet done so.
This will also be the case with the current correction on the precious metal markets. Nobody knows how long or how short it will determine market events, and only in retrospect will it be reliably shown when the perfect time to re-enter was.
Initially, market participants are still busy determining the fair prices for gold and silver. This could represent an opportunity, especially for silver, if investors’ attention shifts to the more attractive risk-reward profile. Not only price issues must be taken into account, but also structural ones such as the relationship between supply and demand.
Are Buyers Now Switching to the Seller Camp?
In a perfect world, especially in a perfect financial world, the demand for gold would actually have to go to zero, because outside of the jewelry industry there would be no need to buy gold. However, we do not live in a perfect financial world with stable currencies that cannot be increased at the touch of a button, but in a world where the debts we have taken on in the past are slowly but surely growing over our heads.
Anyone looking for security and support in the sea of dwindling paper currencies traditionally turns to gold. It is not without irony, therefore, that today it is precisely the central banks, i.e. the issuers of
Probably not. On the contrary, their appetite may have grown a little more in the short term due to the lower prices. Continued central bank purchases can therefore also be assumed for gold in the near future. The fact that the buying wave of the last few months is now suddenly turning into a selling wave is therefore unlikely.
Demand for Silver is Determined by Industry
There is also a dominant group of buyers for silver, the industry. Today, it accounts for around 60 percent of all silver purchases. This was not the case in the 1980s. At that time, industrial silver demand was only around 30 percent; the rest of the silver production was bought up by the jewelry industry and private investors.
In recent months, private and institutional silver investors have hardly appeared as buyers. An exciting question will therefore now be whether they will see the returned prices as entry opportunities and now also push into the silver market en masse in order to profit from the potential of the precious and industrial metal.
Regardless of the question of whether a new group of buyers will push into the silver market with the investors or not, it can be assumed that the precarious supply situation will continue to exist and will determine the behavior of market participants who depend on the delivery of physical silver.
Even the Price-Sensitive Indians are Buying Silver above the Spot Price
The price premiums currently being paid for silver with physical delivery show how high this pressure is. The situation is particularly tense in London, where premiums of up to 1.35 US dollars per fine ounce are being paid for silver with physical delivery compared to the North American market.
India’s appetite for silver has been exceptionally large in recent months, and it was also large when the price of silver reached its current all-time high a few days ago. As a result, price premiums of ten to 25 percent on the spot price were paid in India in October. This observation is remarkable insofar as Asian buyers generally act very price-consciously. They usually do not buy into price peaks, but rather exercise restraint in these phases and prefer to wait for more favorable buying opportunities.
Against this background, is it to be expected that buyers who were willing to pay premiums of up to 25 percent just a few days ago will now hold back with further purchases, now that the price of silver has fallen by more than seven percent? Such behavior cannot of course be ruled out. However, the pressure to always have enough silver in stock for one’s own production has not diminished as a result of the recent price slump. The issue of scarcity on the silver market is far from over.
The Seemingly Endless Gold Rally also Speaks in Favor of Silver in the Medium to Long Term
Another reason that speaks in favor of a continued rally in silver is the seemingly endless rally in gold, which we have witnessed in recent years. Gold has had an extraordinary development, as the yellow metal has not undergone a real correction for two years. In October 2023, gold was still trading at 2,500 US dollars per ounce.
In the meantime, it has become almost 2,000 US dollars more expensive at its peak. What is particularly remarkable about this increase is that in these two years there has not been a single correction that has allowed the price of gold to fall by more than ten percent.
Such a long increase without intermediate corrections is anything but usual for gold. It not only created the basis for a sharp reversal, but also makes it clear what potential silver still has to catch up compared to gold.
