Silver Market Volatility — Will It Continue?

Jeffrey Christian: So, you’re going to see economic weakness. You’re going to see an economic slowdown. You’re going to see lower fabrication demand. There’s seasonality that kicks in. That makes the silver price vulnerable, maybe not to the kind of spike that we saw in early April. Maybe it doesn’t spike back down to $27 and $27.50, but maybe it comes back off to $30, $31, $30, $50, I think is what we’re talking about as a downside target for the next three months. So, in that kind of environment, there are a lot of investors who are going to step up and we have been projecting for some time, and we continue to think that that will be the case, but you’re going to see some fabrication demand. You’re going to see some weakness in silver prices over the next two quarters, next five months, six months and then investors are going to take that as an opportunity to stock up on silver, and that then could turn the silver price around.

Sean Brazney: Boy, what an amazing 35 days we’ve had in silver, beginning of April and near $35. What a $7 swing down into the $27 and back up again to almost $34. So, it’s been a wild ride. I want to talk to you really to see, what do you see coming? Now that we’ve had such a momentous, volatile 30 days, you get into this point of, “Okay, what’s next? Is it going to happen again?” What do you see coming out over the next 60 days? May, June, July as we go into the summer.

Jeffrey Christian:It’s a tough call. Typically, seasonally, traditionally, there is some price weakness in this period, the second quarter and the third quarter, from May into August or September, but I’m not quite sure we’re going to see that this year. Or rather, I do think we’ll see the price weakness, but it’s going to be for different reasons than usual. We’re at a very difficult point in the economy right now. We still have relatively high inflation by 2.6%, 2.8%. It’s down from 9%, but it’s not at the target. That’s true pretty much around the world. You’re seeing weakening in the economic conditions. Labor is holding up pretty well. The jobs report last week was pretty strong, but other factors, the flash report on first quarter GDP, other issues, are suggesting that we could get into a period of weakness. We have a lot of silver that’s been brought over into the United States from Switzerland and England and Hong Kong and Singapore that is sitting here. The dealers want it here because this is where the demand is. Silver demand is a North American and South Asian phenomenon. Rather than have the silver in England or Switzerland where the demand is less strong than it is here, they’d rather just have the silver here. You’re seeing some of the gold that came over shipped back into Europe and Asia, but the silver’s staying here because dealers say, “When I sell silver, the probability is it’s going to be in North America. Let’s leave it here.” It’s a well-supplied market. You could see that well-supplied market combined with economic weakness, lower fabrication demand. You’re starting to see the first ship’s dock on the West Coast with tariff-applied goods from China. The reports are that the cargo volume is half of what it used to be. So, you’re going to see economic weakness. You’re going to see an economic slowdown. You’re going to see lower fabrication demand. There’s seasonality that kicks in. That makes the silver price vulnerable, maybe not to the kind of spike that we saw in early April. Maybe it doesn’t spike back down to $27 and $27.50, but maybe it comes back off to $30, $31. $30, $50, I think, is what we’re talking about as a downside target for the next three months. In that kind of environment, there are a lot of investors who are going to step up. We have been projecting for some time, and we continue to think that that will be the case, that you’re going to see some fabrication demand. You’re going to see some weakness in silver prices over the next two quarters, next five months, six months. Then investors are going to take that as an opportunity to stock up on silver. That then could turn the silver price around. Now, there’s a tremendous amount of uncertainty about what’s going to happen in the economy and in the political system. That could upset this scenario that I just laid out, but that’s our main thinking for how silver plays out for the rest of the year.

Sean Brazney: I have to bring this up, because I’d love to do this with you, It’s a rumor swirling around the market. I think we create some enemies sometimes when we do this, but if people will focus on the facts and the data, they’ll do better with their precious metals investments. One of them is, I’m hearing it from people that write newsletters, precious metals newsletters, and say they’re an analyst. They’re talking about some big setup in May that’s going to take us to $38 and beyond. Do you see anything in your data that is pointing to some big large spike coming up in May that may take us to that?

Jeffrey Christian:I’ve heard those rumors and I’ve spent a lot of time watching the videos from the people who are saying that. They never give you any indication what this big setup is going to be. I don’t necessarily see a positive setup in May. We did have May as an active trading month. If you go back to early April, you had 600 million ounces of open interest in the May contract. Most of that rolled forward by April 28. By April 28, you pretty much had the May futures contract roll behind you. You saw about 60 some odd million ounces of silver futures contracts delivered. They’ve changed hands, but the inventories have actually risen during that time. You’ve got more than 500 million ounces of reported COMEX inventories right now. The market’s well supplied. April could have been a period of higher prices. We don’t see that happening in May. Most of the open interest rolled into the active July contract. July contract, let me just look. It’s got something like 550 million ounces of open interest in the July contract. That could push the silver price higher in June. I don’t necessarily see anything happening other than lower prices to drive investment demand. I don’t necessarily see anything that’s going to be this big setup that’s going to push silver prices higher. You have seen, as I said, about 60 million ounces of May futures contracts taking delivery, but the people who have taken delivery are holding that silver in the COMEX depositories. Almost all of that was taken delivery of in the first delivery date, April 29, 30. I don’t see anything in May that’s doing that. I have heard rumors about Samsung coming out with news about their silver batteries. A lot of the talk has been about silver batteries for electric vehicles. People would say, “Well, if you’re making 17 million electric vehicles a year and each one has a kilo of silver, that’s half a billion ounces of silver. If they all use these silver batteries,” but if you read the Samsung reports, they say, “Yeah, this could have an application for silver in electric vehicle batteries,” but they’re really talking about these things. This is a button battery that actually has silver in it that’s used for handhelds. Samsung is focusing on their rings. They’ve got these little electronic rings and their watches and their smartphones. They’re looking at much smaller applications for that right now. There could be some people who think that there’s going to be some announcement of electric vehicle batteries using half a billion ounces of silver, but Samsung and other companies that are working on silver batteries don’t necessarily see that coming down the pipe, at least immediately.

Sean Brazney: Good. Slow down the train so we can get on here this month and see if we can get some of those higher prices to play out later on. Again, it’s always a pleasure to have you here with us, Jeffrey. Fifty years of precious metals analysis is so valuable. So again, you are the author of our reports. I remind our viewers and listeners to call Monex, talk to an account representative, and get your free report today.