Silver price rises quickly against dollar weakness

The Dollar Index has fallen below 100 points this week. As the series of rate hikes by the Fed is nearing completion, the dollar is weakening against other currencies.

The Dollar Index has moved between 120 points (period around 2002) and 72 points (period between 2008 and 2011) over the last 23 years. There is a clear inverse correlation between the Dollar Index and gold. The lower the Dollar Index, the higher the gold price and vice versa.

In the last 10 months, the Dollar Index has fallen by 12.6%. The gold price has increased by 20% in the same period. Incidentally, gold was unable to take full advantage of the weaker dollar this week. The Dollar Index fell 3% while the gold price rose 1.6%.

Silver rose much faster than gold. The silver price rose by no less than 8.1% in USD and 5.5% in euro’s. Silver has underperformed the gold price this year. The gold-silver ratio moved from 1/83 to 1/78 this week. The silver price closed at $24.94 per troy ounce.

Silver benefits from dual setting

Silver has suffered in the past year from interest rate hikes on the one hand and the risk of a recession on the other. Since 50% of silver demand comes from industry, an economic downturn also means a drop in industrial demand for silver. At the same time, higher interest rates are repressing demand for silver.

With the end of interest rate hikes in sight, this could boost investor demand for silver. At the same time, the economy has held up strong so far. As a result, industrial demand has remained stable. The biggest positive factor has been the increased demand for silver for the energy transition (solar panels and electric cars).

As we wrote earlier, there has been a shortage of silver since 2021. In 2021, there was a shortage of 51 million ounces, representing 5% of the total supply. In 2022, this shortfall was 237 million ounces, 23% of the total supply. The Silver Institute estimates that by 2023, the silver shortage will reach 142 million ounces or 14% of the supply.

This means a shortfall of 430 million ounces in 3 years. Annual mine production is around 840 million ounces. Investors will notice this shortfall sooner or later. The price movement this week may be a start of that.

Agenda

The latest inflation figure in the Eurozone will be published next week. The inflation for June will be published next Wednesday at 11:00 am.