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Silver: Worst Loss In 7 Years, But More Woe If Biden’s Recovery Plan Stalls

By Investing.com (Barani Krishnan/Investing.com)CommoditiesDec 21, 2021 04:41PM ET
www.investing.com/analysis/silver-worst-loss-in-7-years-but-more-woe-if-bidens-infrastructure-deal-stalls-200612219
Silver: Worst Loss In 7 Years, But More Woe If Biden’s Recovery Plan Stalls
By Investing.com (Barani Krishnan/Investing.com)   |  Dec 21, 2021 04:41PM ET
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All the talk of vehicle electrification and transition to clean energy in the United States has fallen flat for silver, leaving longs with the metal’s worst annual loss in seven years. 

And the industrial case for silver may not get much better in the new year if President Joe Biden’s $1.75 trillion ‘Build-Back-Better’ agenda stalls from opposition by renegade Democratic senator Joe Manchin.  

Silver is one of the key components in the manufacture of electric vehicles and solar panels and Biden’s economic recovery plan has generous tax incentives for buyers of both.

Biden signed into law in November a separate $1 trillion infrastructure bill that sets aside $7.5 billion to create a nationwide network of electric-vehicle charging stations. Another $65 billion will go toward various clean energy and renewables for the nation's electricity grid.

Where silver might benefit most is the tax credit in the Build-Back-Better plan that cuts as much as $12,500 from electric vehicle purchases. The plan also grants a 10-year solar tax credit that cuts the cost of rooftop solar by up to 30%. These incentives are seen as rather supportive for the purchase of electric vehicles and solar panels, and could materially boost prices of silver and speciality metals involved in the cleaner energy transition.

Silver is often called “gold’s poorer cousin” on the basis that an ounce of it is worth 80 times less than that of the yellow metal.  

But as 2021 winds to a close, it’s not just the price of silver that’s taking a beating. Silver’s losses are 2-½ times that of gold this year and the worst since 2014 for the so-called white metal.

As of Monday’s settlement of $22.27 for an ounce traded on New York’s COMEX, silver was down almost 16% on the year from the December 2020 close of $26.47. Gold futures, in contrast, are down just over 6% on the year. 

COMEX silver’s year-to-date loss is also the most since 2014 when it fell 19.5%. 

Silver Daily
Silver Daily

All charts courtesy of skcharting.com 

Silver has solid industrial-based fundamentals, but it has been playing second fiddle to gold for years, meaning a rally by itself, sans the yellow metal, seldom survives. 

More than 50% of silver’s demand originates from industrial use. As a malleable metal, it is just as good as gold for jewelry making. It is also a good conductor of electricity, and used extensively in the manufacture of electronics components.

The transition to clean energy is expected to drive physical demand for silver in the coming years, particularly for connections in electric vehicles and for components within solar panels.  

The rollout of fifth generation (5G) telecom networks is also set to become a growing source of demand.  

Silver prices have also been hurt this year “by softness in key end markets, especially the jewelry market,” John Mothersole, a senior official of research firm IHS Markit, said in a report carried recently by Barron's.

Silver has a much “smaller industrial metals component, and is mainly seen as a high beta version of gold,” so when gold falls, silver falls even more, Decio Nascimento, chief investment officer at global macro hedge fund Norbury Partners, said in the same report. 

Silver Weekly
Silver Weekly

Silver’s industrial metals characteristics “won’t be relevant for the price in the near future,” he says, adding that the precious metal probably has not reached a bargain price level yet, with real interest rates likely to be higher next year. That would probably lead precious metals to underperform. Silver futures touched intraday lows this year under $22 an ounce in late September. 

Even so, the supply of silver may grow in 2022, as current prices of $22 to $23 will “incentivize mine production,” KC Chang, senior economist, nonferrous metals, pricing and purchasing at IHS Markit, told Barron's.  

IHS Markit forecasts an average silver price of $20 an ounce next year, as “less accommodative monetary policy and flat retail jewelry demand limit upward movement,” Chang added.

How About Silver’s Technicals In The New Year?

Sunil Kumar Dixit, chief technical strategist at skcharting.com, says silver may show some recovery in 2022, with a potential reach to $23.55 and extension to $24.80 based on chart support evident through this year. 

“The caveat though is that if it fails to clear through $24.80, that could expose the metal to the downside of the $21 handle,” he said. 

Silver Monthly
Silver Monthly

Based on his study of the spot price of silver—which shows more stability than futures—the $21 support was clear and present through 2021, Dixit said. 

He added: 

“A careful look at spot silver’s monthly chart shows that the metal has been strongly supported by the $21 handle since September 2020 on multiple swings.”

“Weekly and monthly charts have positive crossover of Stochastic lines, which may bring some recovery to the 23.6% Fibonacci level at $23.55 and the 38.2% Fibonacci level at $24.80, which is a critical point of decision for further extension toward the 50% Fibonacci level at $25.80. Failure to strike through $24.80 would be bearish for silver, prompting a likely reversal to the 50 month Exponential Moving Average of $21.00.”

Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables. He does not hold a position in the commodities and securities he writes about.

Silver: Worst Loss In 7 Years, But More Woe If Biden’s Recovery Plan Stalls
 

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Silver: Worst Loss In 7 Years, But More Woe If Biden’s Recovery Plan Stalls

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Comments (20)
Robert Flores
Robert Flores Dec 22, 2021 7:04PM ET
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At a much lower cost point and with similar qualities to gold! You bet that silver is irreplaceable! Technology will always put it to good use ! I say hoard physical, buy miners! Wait for gold to take it for a ride to the moon
Barani Krishnan
Barani Krishnan Dec 22, 2021 7:04PM ET
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I see a silver bull here! Ha ha ... All the best, Bob, and Merry Christmas :)
Robert Flores
Robert Flores Dec 22, 2021 7:04PM ET
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Barani Krishnan yes sir! Gold, bitcoin real estate, energy! ….any protection against monetary expansion is a good side to be on! It just takes time with some of these assets!! Mery xmass to you as well Barani!!
Robert Milling
Rob1287 Dec 22, 2021 10:59AM ET
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https://www.fxempire.com/news/article/u-s-faces-tough-choices-in-2022-on-mines-for-electric-vehicle-metals-847676 How the biden administration is handling metals mining to ensure the U.S has enough supply of metals to produce all the EV;s that will save the planet from disaster. We are told on the one hand we are all going to die in the near term future (30 to 50 years) but apparently a flower on a couple acres in Nevada is more important than saving mankind from certain extinction. Right hand meet left hand.  "Washington so far has offered confusing guidance to its mining industry. For example, the U.S. Fish and Wildlife Service is poised to label a rare flower found on a handful of acres at ioneer’s Nevada lithium mine site as endangered, a step that could impede permitting. At the same time, the U.S. Department of Energy is deciding whether to lend the company more than $300 million to build the mine."
Barani Krishnan
Barani Krishnan Dec 22, 2021 10:59AM ET
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You're on a big "fishing" trip indeed. The article is about silver and the implied benefits for the metal's prices from BBB tax breaks for EVs and solars. (Period)
Robert Milling
Rob1287 Dec 22, 2021 10:59AM ET
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Barani Krishnan  So all these EV's are going to what?? Be built without the other metals necessary?? How is silver going to go into cars that are waiting for the other metals they need?? Thats like saying the chip shortage doesnt matter either. If you build it (half way) they will come.
Barani Krishnan
Barani Krishnan Dec 22, 2021 10:59AM ET
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Robert Milling  The supply chain issues will resolve "over time" -- Lord knows how long -- and the assumption is that materials inventory will rise as well. In any forecast, analysts carry the risk of having realities flip on their expectations. I agree this could be one. Yet, the BBB's psychological (bullish) impact on markets cannot be discounted (Goldman Sachs did cut their US GDP outlook, right?), hence the projection that at least futures of silver (and other contributing materials to EVs and solars) will benefit from a passing of the agenda. That's what this article is all about -- nothing more, nothing less. Please do not make it a fishing trip for something else. Thank you.
Robert Milling
Rob1287 Dec 22, 2021 10:46AM ET
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One thing the article fails to address is how all these millions and million of EV cars get produced when the U.S mines next to no rare earth metals itself and has instead over the past ohh 13 years  decided mining is an evil that must be expunged. If an EV cant be built because all the other MUCH MORE IMPORTANT metals are not available, then what use is it to think these cars will have an impact. The U.S steadfastly refused to approve new chip plants.  Bad for the environment. Use lots of water and have toxic waste. Let foreigners do it like Taiwan.  Look how that has turned out. We import a majority of our chips with Taiwan being a major producer as China threatens invasion. Chip wars anyone?? Now we have limited mining. I read the only nickel mine in the U.S is scheduled to close. The only rare earth mine in the U.S was shut down but now reopened but it wont supply anything for a long time as environmentalists battle to get it shut down again. Thats our EV future.
Barani Krishnan
Barani Krishnan Dec 22, 2021 10:46AM ET
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With all due respect, Rob, the article is about silver and the implied benefits for the metal's prices from BBB tax breaks for EVs and solars. Save for your environmental argument or Democratic targeting for the next story on the earth or the US political situation.
Robert Milling
Rob1287 Dec 22, 2021 10:46AM ET
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Barani Krishnan  I quote YOUR article that YOU wrote  "And the industrial case for silver may not get much better in the new year if President Joseph Biden’s $1.75 trillion infrastructure-infused economic agenda stalls, from opposition by renegade Democratic Senator Joe Manchin. Silver is one of the key components in the manufacture of electric vehicles and solar panels and Biden’s ‘Build-Back-Better’ plan has generous tax incentives for buyers of both." So thats not political?? You now complain of politics after you write an article where politics is the beginning of the article and is in the background throughout??  If you cant be challenged, then I suggest you NOT mention politics. Silver is one of the expensive metals that both battery, solar and EV car makers are working hard to eliminate or reduce. People who trade silver in whole or in part on the assumption EV's and solar mean higher silver prices are making a bad investment.
Barani Krishnan
Barani Krishnan Dec 22, 2021 10:46AM ET
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Robert Milling  It is YOU who has made this entirely a political argument. It is a ******fact that if Manchin opposes this bill, it will almost certainly not pass because of the Senate's make-up. Adding that to my story makes this article political? That news, for Pete's sake! Where in the world did you come from? And how many times is Manchin and politics cited in this article? Open your eyes and count! You won't see it beyond the second paragraph. I left it at that and focused on silver for the rest of the story. But no, you had to take a lens with a 1000x zoom to it and ***the whole thing into a political magnum opus in the comments field. Go trawl leftist sites where you'll find red meat for your love of gnawing at Democrats. Seesh!
Jon Gr
Jon Gr Dec 21, 2021 11:34PM ET
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Had to stop reading as soon as the author called it an “infrastructure” bill. Either another activist posing as a journalist or just plain ignorant.
Barani Krishnan
Barani Krishnan Dec 21, 2021 11:34PM ET
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The Build Back Better while acting as a broader economic agenda has major tax ramifications for infrastructure related to EVs and solars. The preceding reference to BBB in the second paragraph makes the link. It's an established fact that a separate infrastructure bill was signed in November. But the provisions for EV are more narrow in that. The allocation for cleaner energy, while large at $65 billion in that, isn't as focused on solar as the tax breaks in the BBB.
Jon Gr
Jon Gr Dec 21, 2021 11:34PM ET
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Barani Krishnan just call it the BBB bill then. It is not an “infrastructure” bill as that was already passed. This is mainly a social spending bill and calling it an “infrastructure” bill is disingenuous which is why I passed on the rest of the (what may have been a good) article. Words matter.
Barani Krishnan
Barani Krishnan Dec 21, 2021 11:34PM ET
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Point taken. It's a case of semantics, as I was homing in the EV/solar components of the package. But yes, there is a specific "infrastructure deal" that was passed and that certainly jarrs with what I'm trying to convey here. It doesn't happen often but it sometimes does and regrettably so, in this case. Thanks for respectful exchange. Bests, mate.
Barani Krishnan
Barani Krishnan Dec 21, 2021 11:34PM ET
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Jon Gr  Have fixed the headline and introduced a couple more paragraphs to better convey the message on the BBB. Thanks for the valuable discussion. Bests.
John Baez
John Baez Dec 21, 2021 6:54PM ET
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Barani stick to opinion pieces in Pakistan.
Barani Krishnan
Barani Krishnan Dec 21, 2021 6:54PM ET
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Why don't stay in your Siberian cave?
Vi Ma
Vi Ma Dec 21, 2021 6:54PM ET
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can't believe we got racists in the investing world as well.
Barani Krishnan
Barani Krishnan Dec 21, 2021 6:54PM ET
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Vi Ma  It's getting quite unbelievable actually. All that's needed is a Biden mention anywhere in a story, as innocuous as that may be.
Robert Milling
Rob1287 Dec 21, 2021 5:37PM ET
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Just a google search shows solar panel manufacturing transitioning away from relatively expensive silver. Same with electric car production. Battery maker Quantumscape right on its website says silver is too expensive for use in next generation batteries. This article seems to just parrot what has been heard therefore must be true. People touting silver as being used by electric cars dont understand the technology for both solar panels and batteries is going away from expensive silver.  Bill Gates for instance is invested in a project to make batteries from readily available iron compounds. The assumption nothing can replace silver is a bad one and just repeats a popular urban myth.
Barani Krishnan
Barani Krishnan Dec 21, 2021 5:37PM ET
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Thanks for the perspective, Rob. I guess it really depends who you are reading and quoting. Forbes and Autoweek as late as August were still saying that EV batteries showed much promise for silver. The IMF in a blog holds up the prominence of silver as well for solar panels though search for suitable nanomaterials continue.
Barani Krishnan
Barani Krishnan Dec 21, 2021 5:37PM ET
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And to be sure, I never said silver is irreplaceable for both EV/solars. I know you threw that in as a kicker without attribution to me, but I don't want anyone making the assumption that I said that or made such inferences because I plainly DID NOT.
Robert Milling
Rob1287 Dec 21, 2021 5:11PM ET
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Once again a never married marriage counselor giving advice on how to have a happy marriage. No mention of the infrastructure bill. No mention that the build back better bill is not supported by the people who sent Joe Manchin to Washington. No mention that if people wanted leftwing socialism they would NOT HAVE VOTED FOR BIDEN. The author apparently lacks the wisdom to ask himself why everyone to the left of biden, and that would be most everyone, LOST THE PRIMARY AND WAS NOT THE CANDIDATE. Its amazing the arrogance of politicians in places like NY and California thinking they know best and the rest of the country is just stupid. Then come November all these people will be saying the infamous line when democrats lose. "How could they lose. i dont know anyone who voted republican" or in this case for Joe Manchin.
Steve Geue
Steve Geue Dec 21, 2021 5:11PM ET
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Renegade means that he actually can think for himself
Barani Krishnan
Barani Krishnan Dec 21, 2021 5:11PM ET
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Yes, as good a renegade Romney has proven to be on the occasions he stood on the opposite side of Trump. Romney could sure think for himself.
Catholic Man
CatholicMan Dec 21, 2021 1:40PM ET
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Glad we've stopped that mess from biden.
alexey orekhov
alexey orekhov Dec 21, 2021 11:35AM ET
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It is a dranwn story that it ia downtrend. Should expect some surprise. Irrespective of what the real demand for physical is... just remember march 21 when physical demand skyrocketed with paper narket reached unpredictable low end of month. So there should be a compensation. Up swing without reason
Roberta Garrett
Roberta Garrett Dec 21, 2021 11:24AM ET
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Author makes good points. silver does well in robust economic conditions. global economy needs to be healed and we need to start building products again. stop playing games, get vaccinated, act like adults, get rid of Manchin, ted Cruz, Alex Jones as a place to start, and lets get on with our lives.
SunilKumar Dixit
SunilKumarDixit Dec 21, 2021 11:24AM ET
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Yes Roberta. Silver being an industrial metal from Precious metals class, is in good demand when economic growth is north bound.
 
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