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Massive Liquidation

Last week’s panic in the financial markets – the Dow Jones Industrial lost 17 % in one week – led to a massive phenomenon of liquidation in almost every asset and asset class. Bonds, Corporate Bonds, Gold, Silver, Platinum, Palladium and almost every asset that can be used as collateral has sold off sharply as investors wee meeting margin calls on their equity portfolios and wanted to raise cash.

Clearly the Covid-19 coronavirus ended the 2019 binge of excess leverage, speculation, and overvaluation that we had been highlighting for months.

With a 35 % fall since its February 12th peak, there is blood in the streets and individual investors who were massively invested and optimistic only a few weeks ago have been forced to liquidate and clearly panicked last week.

The following chart illustrates perfectly well the psychological extremes of investors

Global Liquidation

Nothing better than the following charts show the extent of the global liquidation phenomenon across ALL asset classes, from High yield bonds to US treasuries. It all really happened last week as investors held on prior to that and then were forced to act.

Investment Grade Bonds

Yields on BBB+ and above corporate bonds shot up massively last week in clear signs of panic selling

High Yield Bonds

High Yield bonds yield doubled in one week, reaching levels unheard of since 2008. The move is so sharp that sellers have been selling in marets where there were no buyers and spreads between bid and offer reached 10 to 20 %

US Treasuries

US Treasuries are usually the safe haven of choice. And indeed the sharp fall in yields between February 12th and the week before last testified of that. Suddenly, last week, things changed drastically, and yields almost doubled rising from 0.54 % on March 9 to 1.02 % on Friday.

This represents a 5 % drop in capital value in 11 days in the multi-trillion US Dollars stock of the safest haven .

Indiscriminate Liquidation

Nowhere more than in precious metals the liquidation phenomenon is apparent. Investors have had to sell everything they hold to raise cash and meet margin calls.



Palladium lost 50 % of its value in two weeks


By definition, massive, indiscriminate liquidation phenomenons across all asset classes are a sign that capitulation has taken place and that a bottom is near …

The Dow Jones Industrial Index will find it difficult to lose 17 % two weeks in a row.

Covid-19 is a temporary phenomenon and Asia is already pulling out of it.

A phenomenal BUYING opportunity in Silver

Maybe nowhere more than in Silver the liquidation has opened a once in a lifetime opportunity.

In 11 days, Silver Oz prices have fallen from US$ 19 to US$ 12, a 36 % fall and Silver is now trading at levels not seen since 2008

In 11 days the gap between Gold prices and Silver prices have reached unprecedented levels

It is extremely interesting to see how Silver has decorrelated form Gold since 2017.

Never in the past 20 years have Silver and Gold prices diverged so much. The only explanation for this phenomenon is probably the unique shift of central banks into Gold since 2016 as countries like China, Russia, Iran, and many other “non-US friendly” nations are switching their reserves from US Dollars into Gold.


As a result of the above, the Gold to Silver Ration has exploded upwards to 118x, a level never seen before and never anticipated by any analyst. Since the top of the precious metals rally in 2011, the ratio has moved from 30 to 118x.

A very sharp snapback and reversion to the mean is to be expected any time soon.

Astonishingly, this massive drop in Silver prices and explosion in the gap between Gold and Silver is happening at a time where there is a

It is currently almost impossible to get hold of any physical Silver bars or coins


Clearly the COVID-19 episode will lead to a sharp contraction of economic activity around the world in the first and the second quarters of 2020.

Without going to the extremes of Goldman Sachs who predicts a 9 % contraction of the US GDP in Q2, entire sectors are now idling for periods of 5 to 8 weeks and that will shave off at least 1/3 of 1 month of GDP activity for the year, or -2.7 % of the world GDP.

Considering initial expectations of a 3 % growth for the whole world in 2020, it is, therefore, reasonable to expect a year where global growth will probably be stuck between 0.5 % and 1.5 % for the year.

Although the financial markets have not yet given credit for the massive stimulus packages that are being enacted – US$ 2 Trillion in the USA, GBP 330 Billion in the UK, EUR 360 Billion in Germany – and the massive liquidity injections by the world Central banks, it is highly likely that the second part of the year may be much stronger than expected right now.

If Yield curves are an indicator of future growth, the de-inversion of all yield curves after a sharp inversion points to a strong recovery forward. The US, German, Japanese and Chinese yield curves are now all positively sloped.

China’s economic numbers show that after almost two months of disturbances, the epidemic is under control and activity is picking up again,

As with every industrial metal, the demand for Silver will be impacted, but considering the limited economic downdraft, the fact that industrial use is only 60 % of final demand, the fact that the market has been in systematic deficit for years and the fact that low prices make scrap recycling less attractive, we consider that the 36 % fall in SIlver prices is largely overdone and beyond what the fundamentals would command.

Demand / Supply

The table below shows the summary of Supply/Demand up to 2018 published by the Silver Institute. The final tally for 2019 is not yet finalized. AS THE TABLE SHOWS, THE SILVER MARKET HAS BEEN IN NET DEFICIT EVERY YEAR SINCE 2009 AND THIS WAS THE CASE AGAIN IN 2019

Main Sources of Demand

Industrial use represents 60 % of Silver consumption, Investment activity 18 %, and Tableware and Jewelry 22 %.

Silver demand is at an all-time high already

Breakdown of Demand

Silver demand from industrial fabrication

Silver demand from brazing alloys and solders, as well as electrical and electric applications, rose again this year on the back of continued demand from the automotive sector, which uses an increasing amount of electronics applications, such as safety features, window defogging and infotainment systems, in addition to electric and hybrid vehicles.

Water purification, chemical applications, LED lighting, flexible electronics and screens as well as anti-microbial applications in textiles, all contributed to strong final demand.

The sharp increase in LED lighting and the development of curved screens and foldable phones are areas of high demand growth for the future.

Photovoltaic (PV) demand has been expanding considerably in recent years due to various countries stepping up the pace to diversify their energy-generating portfolio away from conventional fossil fuels and towards a higher share of renewable sources.

Even with legislative changes in China, coupled with global overstocking and continued attempts at thrifting, PV demand will still be very supportive of silver usage, as many governments will continue to provide incentives to install more solar power.  Global solar capacity additions are likely to be above 100 GW per year over the 2018-2022 period.  Even though the growth of solar capacity additions in China slowed modestly last year, that slack is expected to be offset by other countries, such as India, Australia and various European countries in the coming years.

Finally, the sharply increasing price gap between Palladium and Silver prices should boost Silver demand for substitution in catalysts exhaust pipes.


Silver plays a vital role in the production of solar cells that produce electricity.

How is silver used in solar cells? Silver powder is turned into a paste which is then loaded onto a silicon wafer. When light strikes the silicon, electrons are set free and the silver – the world’s best conductor – carries the electricity for immediate use or stores it in batteries for later consumption.

Global silver’s use in photovoltaics (PV), was down 9 percent last year. The PV sector faced ongoing thrifting and substitution pressures last year. Looking ahead, demand for silver from the PV sector is forecast to improve as governments from various countries continue their commitment to generating electricity from renewable energy sources, including solar. Australia, Europe and India are anticipated to see increased installations of solar energy systems in the coming years.


Silver is found in virtually every electronic device. If it has an on/off button, it’s likely that silver is inside. Electronics and electrical demand, the largest component of industrial silver demand, consumed 248.5 Moz in 2018, a 2 percent increase over 2017. China, the United States, Japan, Germany and India were the main demand centers in this category. Brazing alloys and solders consumed 58.0 Moz in 2018, a 1 percent increase over the previous year, led by demand in China, the United States, Japan, India and the United Kingdom.

Silver’s excellent electrical conductivity makes it a natural choice for everything from printed circuit boards to switches and TV screens.

Silver membrane switches, which require only a light touch, are used in buttons on televisions, telephones, microwave ovens, children’s toys, and computer keyboards. These switches are highly reliable and last for millions of on/off cycles. Silver is also used in conventional switches like those used for controlling room lights.

For printed circuit boards, used in consumer items from mobile phones to computers, silver-based inks and films are applied to composite boards to create electrical pathways. Similarly, silver-based inks produce RFID tags (radio frequency identification) antennas used in hundreds of millions of products to prevent theft and allow easy inventory control. RFID’s are also used in prepaid toll road passes. Many CDs, DVDs, and plasma display panels are also fabricated using silver.


A catalyst is something that helps chemical processes happen. The most common catalyst is heat, but sometimes a catalyst is a substance that facilitates the process without undergoing any transformation itself.

Silver is a common catalyst for many manufacturing processes, often producing items that you use every day.

Because of its unique chemical properties, silver is a vital catalyst in the production of two major industrial chemicals: ethylene oxide and formaldehyde. Because the silver is not affected by the reaction, it is almost completely recovered after it is used.

Nearly 10 million ounces of silver are used each year to produce ethylene oxide. Ethylene oxide is the foundation for plastics including polyester, a textile used in both mainstream fashion and specialty clothing. This same substance is an ingredient in molded items such as insulating handles for stoves, keytops for computers, electrical control knobs, domestic appliance components, and electrical connector housings. About 25% of ethylene oxide production is used to manufacture antifreeze coolant for automobiles and other vehicles.

Silver catalysts can also be used to produce formaldehyde, a chemical produced from methanol. It is the building block of solid plastics adhesives, laminating resins for construction plywood and particleboard. Formaldehyde also helps to produce finishes for paper and electronic equipment, textiles, surface coatings that resist heat and scratches, dinnerware and buttons, casings for appliances, handles and knobs, packaging materials, automotive parts, thermal and electrical insulating materials, toys and many other products.


motor vehicles are becoming more and more computerized, and silver plays a vital role in their operation. Over 36 million ounces of silver are used annually in motor vehicles. For example, every electrical connection in a modern car is activated with silver coated contacts. Starting the engine, opening power windows, adjusting power seats and closing a power trunk are all accomplished using a silver membrane switch.

Not only does silver make our cars go, it provides safety. Silver-ceramic lines fired into the back window (and now the front windshield on some newer cars) generate heat to melt ice and keep the glass fog-free.

In the engine compartment itself, silver is often used in high-performance spark plugs and antifreeze in the radiator is produced from ethylene oxide, which is a compound made using silver during the chemical process.

Evolution of demand for Industrial use has been stable over time

But Electric Vehicles will represent a massive increase in demand in the future adding 100 Million Oz of demand by 2040

Likewise, the sharp increase in Solar Panel demand will cause a significant increase in demand for Silver

Silver is a unique precious metal in that more than half of the supply is actually used for industrial purposes. The main driver for this is silver’s excellent reflective and conductive properties. An interesting application of silver is within the solar photovoltaic industry.

In fact, a paste containing silver is critical is both photovoltaic cells, and 90% of crystalline silicon photovoltaic cells. The paste is used within solar cells in order to collect and transmit electrons whose movement is induced by sunlight through the photoelectric effect. In effect, silver helps conduct the electrons so as to create an electrical current; and this electricity can then be stored or consumed. The superior resistivity of silver increases the potential sunlight captured, energy conducted, and ultimately the total power that is generated in a solar cell — the efficiency of solar cells is thus somewhat proportional to their silver content.

Given the need for the global pursuit of more sustainable power sources in the face of climate change, the future of solar power and therefore solar cell production is indeed a bright one.

Two factors provide a definite threat to the unbridled increase in Silver demand due to solar: namely, thrifting and other-technology-related efficiency increases.

Thrifting is the process by which manufacturers try and cut down the amount of silver used so as to cut costs. Indeed, the amount of silver needed to produce a conductive silver paste for the PV industry may be almost halved — from 130mg per cell in 2016, to 65mg by 2028 — this is according to the report, on behalf of the Silver Institute.

The amount of silver has already decreased to a much larger extent, from 400 to 130 mg from 2007 to 2016. Even with this decrease in silver content, solar cell output has actually grown and is forecasted to continue to do so; from an output wattage of 4.7 now — to 6W by 2030. This increase is due to increases in efficiency and other technological advancements in how solar panels are designed and made.

Global Solar Energy growth projections in TerraWatt/Hour

As the model above shows, we are JUST AT THE BEGINNING OF A PHENOMENAL INCREASE IN DEMAND for Solar energy at a time where thrifting cannot go much lower.

Silver Demand for Investing

Savvy investors were certainly planning for the coming economic contraction: they had bought 12 percent more American Silver Eagle coins in January 2019 compared to the same month in 2018. By February, 2019, the Mint sold out of American Eagle 1-ounce silver bullion coins and had to suspend sales.

In 2018, demand for non-bullion silver coins increased for the second year in a row by 42 percent.

U.S. Mint Non-Bullion Silver Coin Demand Soared in 2018 and 2019

U.S. Mint Non-Bullion Silver Coin Demand Chart

It is therefore NOT a surprise that Silver fell victim of massive liquidations when retail investors had to face margin calls last month and that explains the sharpness of the move down.
However, When the stock market will stabilize, investors will pile into Gold and Silver again as a hedge against market dislocations.

In March 2020, both the US Mint and the Canadian Mint are out of stocks and dealers are reluctant to sell physical Silver and coins.

Silver Demand from Jewelry

Changes in fashion trends and growing demand for mid-priced jewelry have thrust silver into the forefront of jewelry design. From Tiffany to David Yurman silver holds a top spot as a core material in the fashion world.

Because of its workability, designers are increasingly presenting silver to fashion-conscious consumers. Silver comes in various purities. The purest silver is .999 fineness, which is 99.9% silver and is considered too soft for jewelry making. For this reason, jewelry designers add harder metals, like copper, to strengthen it. This produces what is known as “sterling silver.” Sterling silver is 92.5% silver and 7.5% copper. Sterling silver has been a standard for silver jewelry in many countries for centuries. Sterling silver is ideal for earrings, bracelets, and necklaces because of its enhanced durability.

Solid growth, particularly in Thailand, propelled silver demand in 2019. Silver should continue to give gold some healthy competition in the U.S., especially with the female demographic and female self-buying. The global market will also likely gravitate toward silver adornment thanks to the wide range of design choices, quality, and prices.

As always, India was one of the largest silver consumers in 2019.  Silver imports reached nearly 225 million ounces.

Silver Supply

One metric ton represents 32’150.7 Ounce of Silver.

In 2019, 27’000 metric tons were mined at an average price of 17 US$ Dollar per ounce, that represents a total of 868 Million Ounces, a 1.5 % increase over the 855 million ounces mined in 2018.

Silver mining is highly price-sensitive, although, as the chart below shows, in 2011 when the price of Silver was at a record high of US$ 50, only 23 300 metric tons were mined.

Production of silver from primary and byproduct operations, except zinc and lead ones, decreased in 2019. Silver recovered from zinc, lead, and gold operations rose slightly.

Silver mining is spread around the world and there are no geopolitical or geographical cornering possible.

The balancing act comes from recycling

As the chart below shows, the cost of recycling is what makes the difference as at times of high prices, recycling volumes explode and at times of low prices, recycling becomes far less attractive

With silver prices having collapsed from 19 to 12 US$, it is more than likely that a large chunk of the recycling supply will disappear temporarily, creating additional tensions on supply.


The massive liquidation phenomenon that has taken place in the past two weeks offers a UNIQUE opportunity to invest in the PRECIOUS METAL that is bound to see a massive and structural increase in demand as Electric vehicles and Solar energy gain traction.