Silver's Surge: A Glimmering Investment Opportunity Amid Market Deficits
On May 17, silver prices surged past $30 per ounce for the first time in over a decade, driven by growing expectations that the Federal Reserve (the Fed) would soon lower its benchmark US interest rate and by escalating geopolitical tensions that spurred demand for safe-haven assets. With the silver market projected to experience a fourth consecutive year of structural deficits in 2024, analysts are increasingly optimistic that this resurgence is just the beginning of a more favourable environment for the precious metal.
Silver, often referred to as the "younger sibling" of gold, has a history of price fluctuations. After peaking at $36 per ounce in the early 1980s, silver prices declined through much of the 1990s. However, the early 2000s saw a resurgence, particularly during the 2007-09 Global Financial Crisis (GFC), when investor flight to safety propelled prices to nearly $50 per ounce in April 2011.
Following a period of stabilization, silver prices hovered in the high teens for much of the 2010s before hitting a new low of around $20 per ounce in the early 2020s. By May 2024, prices had climbed to $32 per ounce, fueled by the ongoing global supply imbalance and increased industrial demand. Although prices softened to around $28.50 per ounce by early August, the underlying market conditions suggest that silver's recent strength may be sustainable.
Market Deficits and Rising Industrial Demand
According to the Silver Institute's "World Silver Survey" (WSS) for 2024, the global silver market recorded a structural deficit of 184.3 million ounces (Moz) in 2023, marking the third consecutive year of supply shortfalls. Despite a 30% year-on-year decrease from the previous year's record high, the deficit remained one of the largest. The report attributed this decline to reduced demand for bars, coins, and jewellery, which offset some of the gains from industrial applications.
Nonetheless, industrial demand for silver reached a record high of 654.4Moz in 2023, driven primarily by the photovoltaic (PV) sector, which saw higher-than-expected capacity additions and rapid adoption of next-generation solar cells. The Silver Institute forecasts that industrial demand will continue to grow in 2024, with the global supply deficit expected to widen by 17% to 215.3Moz due to a 2% increase in demand and a 1% decrease in total supply.
Silver's Role in the Green Economy
Silver's unique properties make it indispensable in various industrial applications, particularly in the green economy. The metal is a critical component in solar panels, integral to the rapidly growing renewable energy sector. In 2023, the global installed capacity for solar energy reached approximately 440 gigawatts (GW), with silver playing a key role in the production of photovoltaic cells.
The outlook for silver demand is further bolstered by other green-related applications, such as power-grid development and vehicle electrification. As the world increasingly prioritizes clean energy, the demand for silver is expected to remain strong, supporting higher prices in the years to come.
Price Projections and Market Outlook
UBS, a Swiss banking giant, recently upgraded its price forecast for silver, citing robust industrial demand and potential supply constraints. UBS raised its end-of-September price target to $34 per ounce, with further increases to $36 per ounce by the end of 2024 and $38 per ounce by mid-2025. This optimistic outlook is supported by the Silver Institute's prediction that total industrial demand will rise by 9% to 711Moz in 2024, driven by a 20% increase in demand from the photovoltaic sector.
However, the market remains cautious. While the ongoing supply deficit and rising demand are likely to support higher prices, the availability of sizable silver inventories may temper the pace of price increases. According to Philip Newman, managing director of Metals Focus, "identifiable silver inventories, as well as metal held off-exchange, remain sizable," though some of this silver may be tightly held, which could impact market dynamics in the future.
The Bottom Line
As the world continues to grapple with economic uncertainty and the urgent need for sustainable energy solutions, silver is emerging as a valuable investment opportunity. The strong industrial demand, particularly from the green economy, and ongoing supply deficits suggests that silver prices may continue to rise in the coming years. For investors looking to diversify their portfolios, silver offers a compelling mix of potential for capital appreciation and utility in a wide range of applications.