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Silver Market Analysis
August 11, 2022

CPM Group Precious Metals Advisory


Silver Price Outlook
Similar to gold, silver prices also declined sharply during July. Silver prices touched their lowest level for the month of $18.01 on 14 July, earlier than gold. Silver prices moved in a range between $18 and $19 for much of the second half of July, until in late July precious
metals prices rose sharply.

While investors in silver exchange traded funds and in Comex futures and options were net sellers of the metal during July, there seemed to be greater interest in owning the metal from longer term coin investors. These investors used the weakest silver prices in nearly two years as a buying opportunity, which provided some support to silver prices.

Concerns about slowing growth, high inflation, and rising interest rates are expected to weigh on silver prices in August at least. While silver prices could decline toward $17.50, prices seem to have put in a short-term bottom for now around $18.

On the upside, silver prices are likely to face strong resistance around $21.30. For prices to forcefully break above this level would require a meaningful deterioration in economic and/or political conditions, which would drive investors toward the metal as a safe haven or portfolio diversifier.

Investment Demand
Net positions held by institutional investors on the Comex slipped into negative territory in the middle of July. Net positions slipped to negative 3.4 million ounces on 19 July and continued to sink to negative 28.9 million ounces by 26 July.

The weakness in net positions was driven entirely by an increase in gross short positions, reflecting the rise in bearish sentiment toward silver. Gross short positions stood at 297.8 million ounces on 26 July, their highest level since July 2019 when they stood at 313.7 million
ounces. Gross long positions meanwhile stood at 268.9 million ounces on 26 July, up modestly from 262.2 million ounces at the end of June.

Given that futures contracts have two sides, and that investors get the liquidity for their positions from commercial traders who serve as market makers, as the investors have gone short on a net basis, the commercials have gone long – the offset of the investor short position. This is the way futures markets work. However, people who promote and believe in silver conspiracy theories and other nonsensical fantasies about the silver and gold markets apparently do not, cannot, understand this or simply refuse to acknowledge it. As a result, they have flooded the darker corners of the internet with commentary about how ‘commercials’ have ‘liquidated’
their short positions and gone long because the commercials ‘know that silver prices are about to explode to the upside.’ This is not the case. The commercials are net long mechanically because the investors are net short.

As in the case of gold, total open interest for Comex silver contracts has been declining since 26 July. The price of silver has been rising, however, which suggests that these market participants were closing out their short positions in greater numbers than they were opening long
positions. If this trend continues the upward momentum in silver prices that has been observed in the past few days may stall out."

*This information is solely an excerpt of a third-party publication and is incomplete. Please subscribe to the referenced publication for the full article. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.

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