Immediate profit booking likely in silver, but may edge higher later

The year 2022 was a tough period for silver. Uncertainty surrounding China’s industrial demand, a firmer US dollar, and rising global interest rates made it the worst-performing asset in the precious metal complex last year.

In the benchmark London spot market, silver started trading at $23.29 an ounce but plunged to a two-year low of $17.53 level by September due to a strong US dollar and rising global interest rates. Prices recuperated swiftly by the end of the year on demand optimism but settled with hardly any gains.

Meanwhile, a weak Indian rupee and firm jewellery demand helped the metal close the previous year with a gain of over 10% in the domestic futures market.

Unlike its sister metal gold, silver prices have been reeling under a bearish grip in the past few years. Worries over industrial demand and contracting safe-haven appeal dented investors from taking big bets on the precious white metal.

Usually, gold and silver move together as both are considered safe havens during periods of economic and political uncertainties. In the past few years, silver traded flatline even though gold prices rallied to record highs. This has reduced the appetite for silver, especially from professional investors.

However, the metal is expected to perform better this year. Supply bottlenecks and demand for safe investments amid a feeble global economic outlook may push prices higher.

There are worries that the global silver market would post deficits of more than 100 million ounces over the next few years. As per the Silver Institute data, silver supplies from mine production in 2022 were 843.2 million ounces.Silver mine production cannot be increased rapidly. Silver is largely produced from gold, copper, and lead-zinc mines as a by-product. Only 25 percent of the required quantity is supplied from primary silver mines.

However, silver demand is expected to test new highs. As per Silver Institute data, global silver demand would reach a new record high in 2023. This is due to increased industrial use and demand in the form of jewellery and silverware offtake.

In 2021 also silver demand posted an increase of 9 percent. It was the highest level since 2010. The resumption of industrial operations and re-opening of businesses after the pandemic-related lockdown largely assisted the sentiment.

Though there are some micro-economic headwinds and weaker consumer electronics demand, growing demand for governments’ commitments to green infrastructure, vehicle electrification, and the adoption of 5G technologies lifted the overall demand for the commodity.

Investment demand may also offer some sort of support to prices in the near future. Due to its perceived value as a hedge against inflation and currency fluctuations, an increase in investment demand is expected as there are worries that the world is heading into a recession.

A weak domestic currency and a prevalent demand for silverware and ornaments in the country may support domestic silver prices as well. In India, while making utensils and jewellery, this metal is often considered as a substitute for gold. Silver Institute also foresees India’s enduring affection for silver underscores the country’s importance to the global silver marketplace.

On the price front, there are possibilities of an immediate correction as prices are hovering near multi-month highs. However, it may find support at dips and is likely to recover later. On the upside, a major hurdle is seen at $30 an ounce, a break of which may extend fresh short-covering rallies. Likewise, major support is placed at $17.20 an ounce.

(The author is Head of Commodities at Geojit Financial Services)

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)