What's going on with the price of silver?

According to figures from research firm Thomson Reuters, there has been a shortage in the silver market for five years in a row now, but we do not see that reflected in the silver price. Kitco's Daniela Cambone asked precious metals analyst Johann Wiebe of Thomson Reuters for a statement price developments. Wiebe contributed to the Silver Survey 2018, an annual report on the silver market that was released this week.

How come the silver price is still below $20. Why isn't the price higher?

There is a precarious relationship between a shortage and a surplus in the precious metals market and the price. We touched on that a while ago. It is not so much that there is a strong relationship between a shortage in the market and higher prices and that the opposite happens when there is a surplus, but also that there is a lot of above-ground supply that is very liquid. These are coins and bars that are available to feed the market when a shortage arises, which is the case now. So it is not the case that a shortage automatically leads to higher prices. And if you look at the size of the shortage, we're talking about only 3% of the total physical market. This is not enough to have a significant impact on the Silver price.

So there is no question of Peak Silver?

I don't think so. It is bullish when you talk about the price target for this year, because there are arguments for a higher price this year. Maybe that could push the price up to $18 per troy ounce, but from 'Peak Silver' is out of the question. The time when the silver price was much higher than it is now, I don't see that happening in the short term, unfortunately.

Are you talking about a five-year term? Or ten years? Will those old levels come back?

That's a good question, we get it a lot. Of course, that depends on a lot of different variables. It must be said that the silver market has several components that have a significant impact. The industry accounts for about 60% of the demand, then you have jewellery and then investment silver, which accounts for about 15% of the total demand. In order for the silver price to rise back to the level of those heydays, the sentiment must be such that investors are willing to withdraw significantly more silver from the market and thus allow the price to rise. And that requires a very positive scenario for investors and poor economic sentiment.

When we look at the price targets – I've heard amounts up to $138 per troy ounce – are they making a sell pitch?

To a certain extent, everyone has certain interests in the market, which makes them make certain statements and perhaps in a certain sense that this is the case. It just depends on which variables you consider, but we don't see this happening anytime soon.

Silver is currently in high demand for use in solar panels. How do you see that?

Retail demand is still a significant part of the silver market. We saw 151 million troy ounces of demand for Silver Coins and Silver bars. This is less than the year before, but it is still significant. Last year, the market was characterized by two phases. We had the downward phase in investment demand, but strong demand for silver for industrial applications, especially solar panels. In the field of solar panels, we are definitely seeing a strong increase in demand, driven by China. There is a big transition going on from fossil fuel to solar energy, because we still burn a lot of coal. So solar energy is going to play an important role for silver.

The gold/silver ratio is currently above 80. Some analysts therefore recommend a short position on gold and a long position on silver. How do you see that?

I understand where that comes from, I've also looked at that ratio. Over the past fifty years, this ratio averaged 55, now we are at 82. And if you look at history, you see that every time the ratio hovers around 80, it starts to go down again. You can say that if the ratio is historically 55 and you now need 82 troy ounces of silver to buy a troy ounce of gold, then silver is currently cheap or gold is expensive.