HedgeTalk - A Silver Lining

By: Johan Rosenberg, Chairman

Silver is an industrial, a financial and a precious metal. Each market delivers a different impact to its price. Due to lower demand-driven revenue deterioration – no new orders for finished goods that use silver in the production process – and manufacturing declines, silver industrial demand is expected to drop. In financial markets, traders have been closing out their near-to-intermediate futures positions, choosing not to roll/re-execute contracts, and instead are raising cash to buy safer investments like treasuries. On the other hand, hoarding of physical silver (coins and bars) as a store of value has caused physical silver to skyrocket since stock markets crashed and prices initially went down. Online dealers of silver coins and bars are out of stock. Likewise, this trend has also been seen in the silver exchange-traded funds markets, which are reporting huge inflows. Demand destruction and lower industrial output will put downward pressure on silver prices in the short run. However, the 25% unemployed will receive their monthly universal basic income checks and hoarding physical silver will continue. This coupled with mining shutdowns in Peru (the second largest global producer of Silver), price action will be inflationary and prices will rally in the long run. Companies that utilize silver and want to offset deflationary price pressures and maintain overall profits should short silver in the short run and go long, longer term. The way to do that efficiently is in the futures market by tweaking your biases and hedge ratios, and participation in the spot market. For questions on how to manage commodity price risks related to your metals/industrial production, contact one of HedgeStar experts at info@hedgestar.com or 952-942-6094