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Silver – Statistically negative returns ahead

Silver has been able to recover in recent weeks. This is due to a growing economy globally after the pandemic, a significantly strengthened manufacturing sector, and inflation expectations and inflation, which are still rising.

Seasonality

On the next graph, we can see the average development of silver for individual months since 2000. The best months in terms of seasonality are January, February, July, August, and December. The worst are April and June, as well as November. Perhaps a statistical indicator - the median - is more credible.

Silver average and medain gain by month Source: Patrik Mackovych | Walfir

The next graph shows the development of investments (blue) vs. global supply minus investment by the SRSRocco Report. Demand for 2021, I note only after March 2021, was almost greater than the entire investment demand in 2018. Investment demand is relatively high, given only the first-quarter data. Investment demand is expected to remain strong throughout 2021. That's not all. In addition, it has awakened significantly, and industrial demand continues to awaken. It fell more significantly in 2020 due to lockdowns and interrupted production. In 2021, however, a significant start is expected in this respect as well.

Annual World Silver Mine Source: SRSrocco Report

Fear of inflation

Another big scarecrow for investors is INFLATION and inflation expectations. It has been growing significantly recently, mainly in the USA, where it grew by 4.2% last week compared to the previous year. The question is whether the rise in inflation is temporary and will end this year, or have the increase in the money supply, monetary and fiscal stimuli caused a steady upward trend in inflation? In our opinion, this is a temporary increase. And even if not, monetary policy can adapt the instruments to this.

The fact that there is a fear of inflation in the USA is also being monitored by Google, which reports multiple searches for the word "inflation". Precious metals or silver, which can be considered a "hybrid" of precious metal and industrial metal, also respond positively to rising inflation. Similarly, gold and other precious metals. However, the best correlation with inflation is not precious metals, but industrial metals such as copper, etc.

CPI YoY Composition Source: Zerohedge

If we look at the structure of inflation, we can see that the biggest behind this growth are the energy prices, which are growing most significantly. Other CPI components are also growing, but less so.

WALFIR Technologies is one of the three divisions of WALFIR s.r.o., which is based in Slovakia. The primary interests of this division are analytical, quantitative, and algorithmic...

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