I’m going to quickly run through some of the biggest factors impacting silver right now.
As I told you at the beginning of the year, China ended almost all of its silver exports. With ~60% of the world’s silver refining capacity, this single move means the entire world is now playing catch-up to build their own silver refining capacity.
For instance, the Trump administration is fast-tracking refinery buildout in Tennessee with a $7.4 billion investment from the Dept of War.
The US actually gets most of its silver from Mexico. At about 25% of global silver output, Mexico is the #1 producer of silver, outpacing the 2nd place producer (China) by about 2X.
But as you may know if you read Golden Opportunity on February 13th, Mexico is undergoing a massive military operation, fighting cartels in Jalisco and Sinaloa.
With many of Mexico’s largest silver mines in the vicinity of this ongoing conflict, it seems likely that supply may be constrained from Mexico as well…
Speaking of military conflict, the Trump Administration is rattling its saber towards Iran, sending an “armada” to the region.
Nothing spooks financial markets like the prospect of a massive war in the middle east. In response, gold and silver prices have jumped. Silver is up 17% over the past week, now selling for more than $91/oz. Gold is up ~5% to $5,225/oz.
Looking ahead, March could be one of the biggest silver delivery months ever. The Comex ramped up its vaults of physical silver inventory heading into the New Year, but the metal has drained out just as fast. The Comex now holds less silver than it did during this time last year – when silver was $32/oz.
If instead of ~10% of traders standing for delivery, we see demand move to 30%, it would wipe out all of the silver at the Comex.
Obviously, they can’t let that happen, but it doesn’t have to in order for the metal price to soar much higher.
And again: when the metal moves higher, it creates an incentive to demand physical delivery. No one wants to be a bag holder – especially if the alternative is to be a silver holder.
The correction in metals prices last month was brutal. It spooked investors for sure. But right now, the story is much different. Demand is still high, and supply appears to be constrained.
One caveat to all of this bad news that’s boosting silver: when the news can’t get much worse, it’s likely to get better. If we see a resolution to the cartel conflict, or a step towards peace with Iran, or some kind of export concession from China, that could send silver into full retreat.
Best,
Garrett Goggin, CFA, CMT
Lead Analyst and Founder, Golden Portfolio