Will Military Demand Underpin Silver Prices ?

The Middle East conflict continues to be the dominant fundamental driver impacting global financial markets.

Daily trading ranges in the precious metals complex narrowed last week with prices following a clear upside bias.

As Gold, Silver and Platinum approach key technical price levels, developments out of the Persian Gulf will likely determine the near-term direction.

Over a longer-term time horizon, increasing demand for safe haven assets could see prices trend higher as investors continue utilizing the “Buy the Dip” strategy.

Physical Gold priced in USD traded 4.1% higher and closed out the week at $4675.00. The yellow metal is now 14.1% higher than the low of $4098.00 posted on March 23rd. 

The 30 Day Moving Average (30-DMA) now sits at $4910.00. A close above that level would improve the technical tone.

Gold denominated in AUD picked up 3.5% and closed the holiday shortened week at $6764.00.

Last week’s close for AUD Gold is now 14.7% above the March 23rd low at $5892.00 and looks to be in reach of the 30-DMA at $6985.00.

Physical Silver priced in USD rose 4.6% to close at $72.95. This closing price represents a gain of 19.7% since posting the low of $60.95 on March 23rd.

As upside momentum continues to build, the 30-DMA at $79.80 looks to be the next technical resistance level.

Silver denominated in AUD traded 4.3% higher to finish the week at $105.50. This closing price represents a gain of 20.6% since hitting the low of $87.45 on March 23rd. 

The 30-DMA is current at $113.50. A close above that level would suggest a durable low is in place.

The Gold verses Silver ratio finished the week fractionally lower in favor of Silver at 63.95. This means it takes 63.95 ounces of Silver to equal the price of one ounce of Gold. 

Physical Platinum traded higher every day last week and has risen during seven of the last 10 trading sessions.

Platinum finished last week with a 6.5% gain at $1983.00. This closing price is 14.5% higher than the March 23rd low at $1732.00.

A close above the 30-DMA at $2075.00 could trigger upside range extension on momentum buying.

Reports out of the Persian Gulf have estimated that over 12,000 different locations have been targeted by US and Israel forces since February 28th.

And unlike previous military campaigns, almost 100% of the munitions fired use precision guidance systems, which require Silver in each piece of ordinance.

As illustrated on Chart 1, physical Silver’s uses in consumer electronics, renewable energy and the automotive industry have been covered by the financial media for decades, but its applications within the  realms of military and aerospace technology are discussed less openly.

Chart 2 shows the mix of applications for Silver specifically in the Automotive industry.

A recent report from the Silver institute in Washington DC suggests that military usage of Silver may be substantially greater than any other industry category, including electronics, solar panels, and investment demand combined.

This information, brought forward by the scale and scope of the Middle East conflict, raises significant questions about the transparency of the defense industry’s Silver demand data and the potential impact on future Silver prices.

While central banks and asset managers regularly report on Silver inventories, purchases, and sales, US government agencies, including the Department of War and  Department of Energy, have collectively stopped reporting on physical Silver inventories since 1997.

In short, the military demand for Silver could potentially outpace industrial and investment applications  as technologies advance and the armed forces restock their inventories.

As such, this growing military demand could have a substantial impact on the overall physical Silver market and potentially influence price and supply dynamics for many years to come.

It’s important to note that physical Silver, along with physical Gold and Platinum, has been in a supply/demand deficit condition for the last four years.

Very few asset classes have outperformed the precious metals over the last two years. 

That’s because central banks, asset managers and individual investors have been increasingly drawn to the monetary purity of assets that represent a secure store of value with no counterparty risk.

The conflict in the Persian Gulf will not last forever. And when a durable peace plan is finally reached, we expect an asymmetrically strong rally in the precious metals.

Now is the time to consider making Gold, Silver and Platinum the cornerstone assets in your long-term wealth creation strategy. 

This publication has been prepared for the GBA Group Companies. It is for education purposes only and should not be considered either general of personal advice. It does not consider any particular person’s investment objectives, financial situation, or needs. Accordingly, no recommendation (expressed or implied) or other information contained in this report should be acted upon without the appropriateness of that information having regard to those factors. You should assess whether or not the information contained herein is appropriate to your individual financial circumstances and goals before making an investment decision or seek the help the of a licensed financial adviser. Performance is historical; performance may vary; past performance is not necessarily indicative of future performance. Any prices, quotes or statistics included have been obtained from sources deemed to be reliable, but we do not guarantee their accuracy or completeness.