Will Higher Physical Demand for Silver Drive Up SLV?

This year, the silver ETF iShares Silver Trust (SLV) didn’t perform well as its price dropped by 18%. The low inflation, the FOMC’s change in policy and the drop in the price of gold contributed to the weakness of silver.  Looking forward, even if the physical demand for silver were to pick up, it’s not likely to turn back up SLV. Let’s see why.

Physical demand – does it matter?

One of the main issues that bullion bulls point out is the changes in the demand for silver that could have an impact on the price of silver and SLV.

But I think the changes in the physical demand played a secondary role on the price of SLV in recent years.

As you can see, the physical demand for silver seems to have limited impact on the price of SLV in the past few years especially.

Back in 2008 the demand for silver reached its highest level in years, and SLV rose over $20 only to fall back by the end of the year to below $9 – so there was a reaction but it didn’t lead to staggering rise in SLV prices. Moreover, the spike in SLV prices during 2011-2012 doesn’t seem to relate to the changes in physical demand for the precious metal.  During those years the demand didn’t increase compared to previous years.


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