Can Chinese economic recovery boost silver prices?
Silver prices fell significantly in recent weeks, dragged down by concerns over Chinese demand, a strong recovery in US yields, and a firmer dollar. In the benchmark London Spot market, prices corrected more than 12% in the last one month while losses were limited to 9% in domestic futures due to a weak Indian rupee. Silver returned to the limelight in May when prices surged to near one-year high.
The boost in prices largely came from industrial demand, especially from China. Silver is more of an industrial metal even though both gold and silver are regarded as safe-haven investments. The commodity has both industrial and investment applications, but during the past few years, industrial uses of this metal have significantly increased.
The industrial sector accounts for around 60% of silver use worldwide, with the remaining 40% going to investments. China plays an increasingly important role in the global silver industry. The country is the second-largest consumer and one of the top producers of the commodity.
However, the recent string of downbeat economic releases from China highlighted intensifying pressure on their economy and thus the demand for silver. After witnessing an initial rebound in the first quarter, China’s economy has come to grips with long-standing problems and slowing global demand for its products. The consensus forecasts for each of the major activity indicators have fallen short in recent months.
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