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Written by Drew Voros  |

June 06, 2012

Mitsui Precious Metals’ Jollie: Silver Taking Cues From Gold Price, Gold/Silver Ratio & Eurozone

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Strategic analyst at Mitsui Precious Metals explains why silver can be difficult for investors to understand and offers tips on how to read the market.

David Jollie is a veteran strategic analyst at Mitsui Precious Metals in London and covers all the precious metals globally for the company. His focus is not short-term price movements but more long term, some medium trends as well as supply-and-demand issues. HAI Managing Editor Drew Voros recently spoke with Jollie in his London offices and tapped his insight for a look into the silver market, one of the most volatile and unpredictable commodities for investors. (Editor’s note: The interview took place on May 30, two days before gold’s biggest advance in the last three years.)

HAI: Why is silver so difficult for investors to read properly?

David Jollie: If you compare silver to the other precious metals markets for platinum and palladium, you’ve got a relatively small number of users of those metals compared to silver, whether that’s industrial users or jewelry manufacturers. So in terms of measuring a market, in terms of understanding the dynamics of the market, you can segment it relatively easily and build up your own standing or picture the market that way.

Gold is quite different. Gold is a lot of huge numbers of small jewelers in China and India. But you can view it almost on an economic level or a macroeconomic level, or a country basis as well.

Silver has huge numbers of industrial users, some of which may be relatively small. This segmentation is quite complex. The number of companies involved is so large that you can’t go and see every silver manufacturer, which you can in some of the other metals. That just makes it quite difficult.

For a long period of time you had a silver price that was fundamentally not very exciting. That didn’t encourage people to go and spend time looking at this and trying to understand the supply-and-demand fundamentals. What you’ve seen in the last couple of years is much higher prices, maybe much more reason to look at it. But still, people have to start from a kind of difficult position in terms of trying to understand it.

HAI: What then do you see as the biggest influence on silver prices right now?

Jollie: The biggest influences are really the gold price and the situation in Europe. Rightly or wrongly, the gold price does affect the silver price. Not in a 1-to-1 ratio where they move in lock step, but gold clearly has an impact on silver prices.

At the beginning of last year when you saw the high prices, you also saw things that suggested demand was pretty good. The U.S. Mint was selling record numbers of coins. You could see relatively high premiums for certain forms of silver and in certain locations, which again suggested demand, electronics demand, things like that were pretty good, particularly in Asia, but also in the U.S.

And you could see investor interest in ETFs as well at various points. You could see physical investment, you could see decent demand and relatively low price sensitivity of recycling. Industrial users tend to recycle whatever because it’s worth enough for them to do that.

Individual consumers don’t recycle or resell silver jewelry in anywhere near the same levels as gold historically, because it’s not worth as much. If you look at where we are today, you can still see some reasons why silver might move higher. People are particularly looking at gold as one of the spurs. So either a safe-haven hit in gold developing, or some more certainty over the euro developing, or monetary easing out of the U.S. in particular are some of the spurs that could send gold higher and might send silver higher.