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Many media reports have linked silver’s recent price volatility to last week’s targeted buying of a handful of small US equities by retail investors. But strategists at Capital Economics reckon that it marks just another bout of silver’s well-known price volatility.

Key quotes

“There isn’t significant short interest in the silver market, as was the case for the US equities targeted by retail investors last week. CFTC data suggest that investors have been net-long on silver since mid-2019. What’s more, the primary holders of large silver ETFs such as iShares Silver Trust (the world’s largest) appear to be banks and hedge funds, so the scope seems limited for retail investors to inflict similarly heavy losses on institutional investors in the silver market as they did on large equity investors last week.”

“The silver market is far larger in size than individual small-cap US equities, making the market more difficult to corner, although it has been done before. An average of over $10 B in silver futures and options contracts are traded daily on Comex, several times more than the market capitalisation of the US firms in the spotlight last week. In addition, unlike with equities, there are considerable off-exchange reserves of silver available.”

“In any case, periods of price volatility are all too common in the silver market, given its relatively lower liquidity compared to gold. In 2020 alone, there were 55 trading days during which the price of silver moved by at least 5%, and 7 days by at least 10%. As such, the recent behaviour of the silver price is far from surprising, and is likely to repeat itself before long.”

“The bigger picture is that we are downbeat on the outlook for the silver price this year. For one, we expect a slowdown in China’s economic expansion in the second half of the year to weigh on industrial demand for silver, while safe-haven demand is likely to be less supportive this year.”