By Alexander Jones, International Banker
On May 17, the price of silver topped $30 per ounce for the first time in more than a decade as expectations grew that the Federal Reserve (the Fed) would lower its benchmark US interest rate soon, and geopolitical tensions globally drove safe-haven demand for the precious metal. With the market widely tipped to experience a fourth straight year of structural market deficits in 2024, many analysts view this renewed strength as just the start of a more bullish environment for silver. As is the case for its elder sibling, gold, China’s voracious appetite for precious metals, including silver, could result in a dramatic price appreciation for the shiny transition metal in the coming months.
It has been a case of extremes for silver prices over the decades. Spiking to $36 per ounce at the beginning of the 1980s, silver prices spent much of the latter half of that decade and the 1990s in the doldrums. It was only from about 2006 onwards that silver really took off as the supercycle of China’s insatiable demand for commodities swung into full gear. Then, the 2007-09 Global Financial Crisis (GFC) drove a major investor flight to safety that sent prices screaming to almost $50 per ounce by April 2011.
After falling back down to earth, silver prices spent much of the latter half of the 2010s in the high teens before finding a new floor in the early 2020s of $20 per ounce, below which prices have rarely fallen. What’s more, 2024 has already seen prices surge above $30 per ounce, with $32 per ounce reached in May—which reduced the gold-to-silver price ratio to its lowest since December 2022—before moderately easing to roughly $28.50 per ounce by the beginning of August. Much of this support has been provided by the global silver-supply deficit that persisted for the three years through 2023, in addition to the expanding supply deficit widely predicted for 2024.
Indeed, silver demand massively exceeded silver supply for the third consecutive year in 2023, resulting in a structural market deficit of 184.3 million ounces (Moz), the silver-industry association Silver Institute (SI) reported in April. “While the global market deficit fell by 30 percent year-on-year from last year’s likely all-time-high, at 184.3Moz (5,732t), it was still one of the largest figures on record,” according to the SI’s “World Silver Survey” (WSS) for 2024, which attributed the declining deficit to sharp falls in bar and coin investments and jewellery and silverware demand, which meant total global silver demand fell overall year-on-year by 7 percent to 1,195Moz (37,169t) from 2022’s record highs.
Nonetheless, this demand was still 9 percent above the next highest total ever recorded by the WSS series. Indeed, the survey identified robust demand from industrial applications as being the prime supporter of silver’s fundamentals last year, with structural advances in green-economy applications underpinning these gains, mainly via the photovoltaic (PV) sector with higher-than-expected PV-capacity additions combined with faster adoptions of next-generation solar cells, and increased electronics and electrical demand by a significant 20 percent.
Offtake of silver by the industrial sector achieved a record high last year, rising by 11 percent to 654.4Moz (20,353t). “These [industrial applications] continued to push higher last year, reaching a new all-time record, fuelled by the remarkable rise in solar demand and in spite of stagnation in some other sectors,” according to the Silver Institute. A slight decline in mine production underpinned the “sluggish” silver-supply picture, meanwhile, which also contributed to silver’s deficit conditions last year.
What’s more, this swelling industrial demand prompted the Silver Institute to project another widening of the deficit in 2024, which, in turn, has done much to buoy prices in recent months and reassert a distinctly bullish environment for the metal. “From electrical switches and solar panels to chemical-producing catalysts, silver is an essential component in many industries. Its unique properties make it nearly impossible to substitute, and its uses span a wide range of applications,” according to the Silver Institute. “Almost every computer, mobile phone, automobile and appliance contains silver. It is the perfect substance for coating electrical contacts—like those in printed circuit boards—because of its high electrical conductivity and durability. Painting silver ink on any non-metal surface provides an electrical pathway, eliminating the need for wires.”
With solar among the fastest-growing sources of renewable energy at around 440-gigawatt (GW) installed capacity in 2023—and with silver being a key component of PV cells—the outlook for industrial silver demand is perhaps more bullish than at any time this decade. Other green-related applications, including power-grid construction and automotive electrification, are further contributing to the bright outlook for silver in the years ahead as the world continues to accelerate its desire for clean-energy alternatives.
The silver market’s global supply deficit is expected to widen in 2024, which helps explain the proliferation of bullish price forecasts published this year for the shiny, white transition metal. According to the Silver Institute’s estimates in the 2024 WSS, the global silver deficit will rise by 17 percent to 215.3 million troy ounces in 2024 due to an expected 2-percent growth in demand—again led by robust industrial consumption—combined with a 1-percent decline in total supply.
“Robust gains from photovoltaic applications and decent performances in other segments are expected to see industrial demand reach a new all-time record,” the 2024 WSS also predicted. “An uptick in discretionary spending and restocking should boost jewellery and silverware demand, driving year-on-year rebounds in both demand segments. All this should more than offset the declines we expect in bar and coin investment… Crucially, supply will continue to stagnate, with a marginal decline forecast for the year. This will drive the market deficit up by 17%, to 215.3Moz (6,695t) for the year.”
Does this ballooning deficit pressure mean that silver prices are about to head to the heavens? Not necessarily. “Identifiable silver inventories, as well as metal held off exchange, remain sizable,” according to Philip Newman, managing director at consultancy Metals Focus, which produced the “World Silver Survey” for the Silver Institute. “However, some of this silver may be tightly held, so it will be interesting to see, going forward, what impact ongoing deficits have on the market.”
Indeed, the insatiable appetite for silver that’s also helping drive the rapidly expanding solar, electronics and automotive markets could eventually begin to weigh on the metal’s inventories. Peter Krauth, silver-market analyst and author of The Great Silver Bull: Crush Inflation and Profit as the Dollar Dies, recently explained in an interview on the YouTube channel The Deep Dive that elevated demand for silver for various industrial use cases means that not only is demand easily outpacing supply but also that there are probably only between 12 and 24 months of silver available before inventories run out.
As technology continues to develop, meanwhile, the need for silver in these industrial use cases is likely to continue to support higher prices. And that means the overall demand largely depends on the outlook for demand from China, which was instrumental in boosting industrial demand for silver last year. “Chinese silver industrial demand rose by a remarkable 44 percent to 261.2 Moz, primarily due to growth for green applications, chiefly PV,” the 2024 WSS acknowledged. “Last year, China’s rapid expansion of PV production accounted for over 90 percent of global panel shipments.”
As for price forecasts, UBS updated its outlook for silver in May, largely due to this robust industrial demand as well as possible supply cuts in the market. The Swiss banking giant raised its price prediction by $4 per ounce across various future dates, with the end of September now expected to see a price of $34 per ounce, the end of 2024 at $36 per ounce and the end of March 2025 to maintain the $36 level. A new forecast of $38 per ounce was also announced for the end of June 2025. “So, why are we raising our price forecasts? According to the Silver Institute, total industrial demand is expected to rise by 9 percent to 711 Moz, driven by demand from the photovoltaic sector, which is estimated to rise by 20 percent year-on-year to 232 Moz,” the UBS analysts confirmed. UBS also noted that challenges are flaring up on the supply side of the market, with mine production likely to fall by 0.8 percent to 823.5 million ounces due to temporary closures of silver mines in Peru.
And while the Silver Institute forecasted a further 40 million ounces of solar demand this year, Chen Lin of Lin Asset Management stated he expected the sector to require an extra 100 million ounces to bring its total usage to 300 million ounces in 2024. “From all the data I get, it’s 100 million…so from 200 million to 300 million,” Lin told the Investing News Network. “My point is that once investors see the huge deficit, they truly see the huge deficit in silver; silver will go to $50 just like that—just in a heartbeat.”
J.P. Morgan, meanwhile, has forecasted that silver prices will average $36 per ounce by 2025, underpinned by “strong macro fundamentals and a supportive supply and demand backdrop”.