CRZBF - Silver Price Slumps to Lowest Level Since 2009

The spot silver price fell as low as US$12.13 per ounce in early trading hours on Monday (March 16), dampened by widespread global uncertainty. 

Like most other asset classes, silver has been hurt by a selloff based on fears surrounding the COVID-19 outbreak, which was declared a pandemic last week by the World Health Organization.

Concern about the economic impact of the disease prompted the US Federal Reserve to cut interest rates on Sunday (March 15), dropping the federal funds rate to 0 to 0.25 percent.

The reduction is the Fed’s second so far this month; the first came on March 3, when it lowered the federal funds rate to 1 to 1.25 percent, citing the “evolving risks” posed to economic activity by COVID-19.

Silver had a much more muted reaction to that rate cut — its low point on March 3 was US$16.81 and its high point was US$17.29.

When it happened, many market watchers suggested that the Fed’s move wasn’t a good one and wouldn’t be enough to kick the American economy back into gear.

“How many more of these do they have left?” John Kaiser of Kaiser Research asked at the time. “We’re going to be at 0 percent interest rates and then what? That hurts all the the savers, the retirees who are now getting zero on their savings. I don’t think this is the solution to the problem that we’re facing.”

Sunday’s fresh rate cut shows that skeptics like Kaiser were on the right track.

“The effects of the coronavirus will weigh on economic activity in the near term and pose risks to the economic outlook,” the latest statement from the Fed reads.

“The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”

The Fed also announced a US$700 billion quantitative easing program on Sunday, pledging to boost its holdings of Treasury securities by at least US$500 billion and its holdings of agency mortgage-backed securities by at least US$200 billion.

After its initial plunge, silver picked up steam later on Monday, reaching US$12.91 by 5:00 p.m. EDT.

However, that’s far below last Friday’s (March 13) close of US$14.69. It’s also well under US$18.50, silver’s highest price so far in 2020, reached last month on February 24.

The white metal has not been below US$13 since mid-2009; for context, its highest price ever was in the 1970s at nearly US$50.

Precious metals like silver are seen as safe havens, and generally become more appealing when interest rates fall. That’s because lower rates decrease the opportunity cost of holding non-yielding metal.

The abnormal response recently, which extends to gold, has been blamed on investors hunting for liquidity in the form of cash.

“Everything is being sold, market participants are throwing in the towel just leaving the exits,” Commerzbank (OTC Pink:CRZBF,ETR:CBK) analyst Carsten Fritsch told Reuters. Silver is also suffering from lower industrial demand.

Interestingly, some have pointed out that while the spot price of silver is low, demand for physical silver is so high that dealers are having trouble meeting it.

Bought gold and silver. Not because of price but because dealers cannot get supply. Prices dropping but nothing available to buy. Gold and silver being hoarded. Floating supply disappearing. Good news or bad news?

— Robert T. Kiyosaki (@theRealKiyosaki) March 16, 2020

The spot silver price refers to the amount that the white metal could theoretically be sold for at a given time and is determined using a formula based on futures contracts. The price of physical silver is generally higher due to premiums put in place by sellers; these can rise during times of high demand.

It’s also worth noting that some silver stocks fared better than the metal itself on Monday.

While pure-play silver companies are few and far between, major names include First Majestic Silver (TSX:FR,NYSE:AG), which was up 10.81 percent on the TSX at close of day Monday, and Pan American Silver (TSX:PAAS,NASDAQ:PAAS), which finished the day up 5.58 percent on the exchange.

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Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.