Copper and silver have gone their separate ways this year, with global economic growth and limited supplies driving copper’s growth for the third year in a row. But silver has failed to gain traction and will soon suffer its biggest annual loss since 2014.
“Overall, when copper outperforms silver, it means that expectations for the global economy are very optimistic,” said Desio Nascimento, chief investment officer at global macro hedge fund Norbury Partners. At the same time, “expectations of higher global growth rates, inflation and real interest rates are all good reasons for ditching precious metals” such as silver.
Growth expectations rose this year, then eased by mid-2021, but limited copper markets have provided “excellent support,” he says. In the first eight months of this year, the global refined copper balance showed an apparent deficit of around 107,000 metric tons, according to a report released last month by the International Copper Research Group.
Copper has turned into “a fundamental shortage due to strong consumption growth in China,” accompanied by disruptions in copper mines, says John Mathersol, director of research, pricing and procurement at the company.
The emergence of the Delta variant of the coronavirus meant that the ‘friction’ in global supply chains lasted longer than previously thought, ”he says. Thus, recovery of production at copper mines began only in July and remains “relatively low” so far. This is expected to change in 2022, but deficits and a slow recovery have supported prices last year.
IHS Markit expects copper consumption growth to slow to 3.6% in 2022 from 4.7% this year, mainly due to weakness in China’s development sector, Mothersole said. According to him, the growth in production of petroleum products could increase by more than 5% next year from less than 4% this year.
Silver, meanwhile, “has been hit by weakness in key end markets, especially the jewelry market,” says Mothersole.
Since the beginning of the year as of December 8, copper futures have traded nearly 25% higher after hitting a daily high in May at $ 4.888 a pound, the highest daily level on record, according to FactSet. Silver fell 15% ahead of nearly 6% in gold futures.
Silver has a much smaller proportion of industrial metals and is mostly seen as a beta version of gold, so when gold falls, silver falls even more, says Nascimento of Norbury Partners.
The characteristics of industrial silver metals “will not be relevant to price in the near future,” he says, adding that the precious metal is likely not yet at a bargain price level and real interest rates are likely to be higher next year. This is likely to lead to a decline in precious metals performance. In late September, silver futures hit intraday lows this year below $ 22 an ounce.
Silver supply is expected to rise in 2022 as current prices of $ 22 to $ 23 “will stimulate mining in mines,” said Kay Si Chang, senior economist for non-ferrous metals, pricing and procurement at IHS Markit. Meanwhile, he said industrial demand will face obstacles next year. IHS Markit predicts an average silver price of $ 20 an ounce next year as “less flexible monetary policy and unchanged retail demand for jewelry constrain the upward movement,” Chang says.
Copper, meanwhile, looks set to continue to rise in prices next year.
“Smart investors will understand how [copper] the market is and will continue to exist for the next few years, ”and prices will rise, says Nascimento. For silver, the positive outlook for growth and inflation will lead to higher real rates and lower prices for silver and gold, he said.