Signs of a swift recovery in demand. Is it the right time to buy silver?
Silver prices recouped from a multi-year low on demand optimism. Global consumption of the precious white metal is expected to reach a record total this year, driven by post-pandemic industrial and physical investment demand.
Silver was reeling under the bearish grip for the past several weeks. It was the worst-performing precious metal in 2022. A firmer US dollar, rising global interest rates, and a decline in industrial demand lessened the sheen of the commodity throughout the year.
In the international market, silver hit an all-time high of $49.51 an ounce in 2011. But, due to weak fundamentals, it sunk to a low of $11.61 by March 2020. It again went up to $30 an ounce but lost momentum later. However, the ongoing demand optimism further reignited the metal’s prospects.
A recent report published by the Silver Institute projects global silver demand is likely to reach a record high of 1.21 billion ounces this year with a noticeable increase in key areas of demand, except photography.
Industrial demand is on course to grow 539 million ounces this year, albeit 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.
Silver is an integral part of many green technologies. Since the globe is moving toward a green economy, investment in decarbonization and electrification continued to grow. It is largely used in renewable energy solutions, especially in photovoltaic industries. Silver loadings are high for the electrification of electric vehicles as well. These new and emerging applications are offering structural support to the metal.
Physical investment demand is also set to post new highs in 2022. Global inflation fears, recession concerns, and bargain buying at lower levels attracted investor attention. A near-double demand from India has also lifted the appeal of the white metal.
Prevailing supply-demand dynamics are too supportive for the metal. The global silver market is estimated to post a second consecutive deficit this year. Meanwhile, mine production is expected to rise by one percent. Despite high energy prices raising worries over mine production, several major new projects have come online in recent years offsetting concerns of supply shortage.
Meanwhile, ETF demand continues to be on the lower side. Institutional investors refrained from the metal due to high volatility and opportunity in other asset classes. Gold and silver usually move together as both are considered safe havens. Nevertheless, in the past few years silver traded flat even though gold prices rallied to record highs. This has reduced the appetite for silver, especially from professional investors.
A possible rebound in global economic activity due to cooling energy prices and softening of hard-line stance by Russia is likely to push the metals’ industrial demand in the near future. Likewise, easing global inflation is expected to push the retail demand as well. Hints of slowdown in the pace of rate hikes by the US Federal Reserve and falling dollar index, perhaps rekindle the metal’s investment demand as well.
From the technical point of view, London spot prices may vary inside $22.50 – 17.50 an ounce levels initially and breaking any of the sides would suggest fresh short-term directions. Domestic prices are most likely to trade choppy inside Rs 51000-Rs75000 per kg levels with mild positive bias.
(The author, Hareesh V, is Head of Commodities at
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