Gold Silver Reports: Commodities witnessed an interesting end to a decade in 2020, which was for the most part unfriendly for the resources sector. Traders were caught off-guard by the unprecedented coronavirus crisis last year. Likewise, a strong recovery across the commodities board came as a surprise, bringing them in vogue and kick-starting a super cycle.
The year 2021 is likely to see an extension to the structural shift in commodities, driven by two main narratives; China’s quick post-pandemic economic turnaround and the global reflation play. Reflation theory refers to an expansion in the level of economic output by fiscal or monetary support offered by governments.
Silver price set to outshine gold
It is more apparent than ever, silver has much more room to rally this year than gold should the love for commodities extend.
Silver has wider applications in the industrial sector as it is also seen as the next best hedge against inflation after gold. Therefore, if a potential vaccine, as well as stimulus-driven global economic recovery, materializes, the white metal could see a strong revival in demand for industrial applications.
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Looking at the supply-side scenario, strict COVID-19 lockdowns in major silver producing countries, including China, Mexico and Peru, have caused disruption in the metal’s production. The covid restrictions also triggered supply constraints for gold, although its impact on silver prices is more pronounced, as mined silver supply is much more concentrated in the key silver producing countries.
Mined silver supply is expected to decline by 6.3% YoY, a greater drop than for gold, Adam Webb, Director of Mine Supply at Metals Focus, noted.
Further, the US and China’s pledge to move towards decarbonization could likely add credence to the upbeat outlook on the white metal. A significant shift toward solar energy to generate electricity could likely boost the demand for silver in photovoltaics.
Having said that, gold prices are likely to remain supported by the continuance of massive fiscal and monetary stimulus globally and higher inflation prospects. However, the extent of the rise may not match that seen in 2020, as governments could hold back on rolling out additional stimulus should the vaccine-driven economic turnaround gain momentum.
Empirically, gold hit fresh record highs above $2,000 in August while silver reached seven-year highs at $29.85. Therefore, silver has enough scope to challenge the all-time highs of $49.83 registered in 2011.
In another evidence of silver outperforming gold, the Gold/Silver ratio has reverted towards August 2020 troughs just below 70.00. The gauge sold-off aggressively last year and hit the lowest since March 2017. Amid a brighter outlook for the semi-precious metal, a significant influx in exchange-traded funds (ETF) could probably back the surge in the prices.
Copper price: Too hot to handle
Copper’s stellar performance in H2 2020 makes it one of the most favorite industrial metals starting out 2021. The red metal topped 2020 at $7741.50, with investors eyeing a break above the $8000 threshold this year.
One of the three key reasons behind copper’s expected bull run is seen as the reflation induced pent-up consumer demand, which will keep the global manufacturing sector humming. The optimism over the economic recovery will keep the safe-haven US dollar pressured, which could underpin copper prices.
The most obvious factor remains the continued growth in Chinese demand for the non-ferrous metal, fuelled in part by the State Reserve Bureau’s (SRB) strategic and record-high cathode imports.
Chinese net imports of refined copper jumped by 45% YoY to 4.2 metric tonnes in Jan-Nov 2020, according to data published by the China Customs.
An unprecedented move towards copper-intensive renewable electricity wind power generation projects by the US and the dragon nation has bolstered the demand for copper.
US President-elect Joe Biden has pledged for a “Clean Energy Revolution”, which calls for the installation of 500,000 electric vehicle charging stations by 2030 and would provide $400 billion for R&D in clean technology. This effort will require extensive use of copper.
The technical breakout confirmed on LME Copper’s monthly chart makes it the last and a key catalyst that could collaborate with a potential upside in prices. The metal dived out of a decade-long descending channel around mid-2020, fuelling the surge seen in the latter part of the year. A rally towards the $10K level cannot be ruled out on an acceptance above $8000.
Oil price to stabilize at higher levels
Both crude benchmarks have staged a phenomenal recovery after the slump to historic lows in March 2020. The WTI futures on Nymex even steered into the negative territory for the first time ever.
The global covid lockdown and travel curbs dried up the physical demand for the black gold. As a result, oil firms resorted to renting tankers to store the surplus supply, which forced the price of US oil into negative territory.
