Silver and Its Never-Ending Demand Prospects
Global Demand to Reach New Heights
This past Tuesday I attended the Silver Institute dinner in New York City. The company, Metals Focus, which they contract to do their research presented on the current conditions of the market.
The basic result of the presentation is that the market has not changed much since their last presentation as we remain in deficit of production to actual demand. According to their studies we are entering into the fourth year of a shortfall.
Industrial demand is at the center of the change in the supply and demand landscape. They believe that by the end of 2024 industrial consumption will have reached 700 million ounces this year. This would represent a 7% increase. The electrification of everything from solar panels to electric vehicles being major drivers of this demand. It is because of this that silver stands out as the metal whose uses seem to constantly grow. Even in the face of thrifting in certain applications such as those in the photovoltaics, it has little effect because overall demand for the products using the metal is out pacing the implementation of the new thrifting processes.
The jewelry and silverware sectors are also expected to grow. In particular, demand for silverware in India is very strong. This is opposed to most of the western nations whose culture has essentially changed and only the very wealthy care to own this luxury for their homes.
Silver jewelry in all markets is expected to grow, no doubt supported as well by the meteoric rise of the gold price. Golden products will still take a good share but to fit the price targets the public will see more silver jewelry plated with gold. Providing the same luxurious look at a significant discount.
Silver retail investment is not expected to grow and has had a significant drop in demand especially in the USA where it is believed to be about a 40% decline. The reason for investment in precious metals has not dissipated since the US Debt crisis remains. The election of Trump to the presidency in the USA has given some comfort to the public that the US will regain control of its spending and debts, and this is why we have been seeing the recent price declines in silver and gold.
On the other hand, the silver exchange traded products have had significant inflows of close to 8% year-o-year. As the market knows these investments are typically very sticky and do not represent a threat to the market supply structure at current price levels.
Mining and recycled supply of the metal is not meeting current overall demand. Metals Focus expects this deficit to remain for the next few years. For more details about these factors please visit the Silver Institute’s website.
The price of silver nearly broke through the $35 price level a rise of close to 29%. Now it is off more than $4 from the price level. What does this all mean?
Well from my point of view, the fundamentals support healthy demand that will not be going away anytime soon. This, I call the most basic market support factor. Then you must consider inflation, the global debt crisis, the currency wars (BRICS) and the unknown.
Gold is the leading indicator for these factors and though it has suffered a significant price correction since the elections from the short-term high of its prospects. This exuberance and expected relief from mismanagement of the USA’s economy will be short-lived as the problems built up over recent decades will not disappear. In my estimation, these price dips represent a real opportunity to build a safety net that will work to offset future weakness in the US currency and economy.