Analysts predict that industrial demand may create record-high silver prices this coming year. The current year-to-date price for silver (as of February 7th) is already 8% higher than its average price in 2022. As the industrial applications for silver continue expanding, analysts expect the demand complex to push silver into record-high price brackets.
Silver industrial demand hit record highs in 2021 and 2022, and analysts from Silver Institute and Metals Focus expect it to increase by another 2.6% or 550 million ounces in the coming year. As the government embraces more green efforts, especially electric vehicles, the silver market should accelerate at impressive rates. China’s end to the zero COVID policy also contributes to the boost in industrial metal demand, including silver.
Silver Institute expects the solar industry to create record-high silver demands in the coming year as well. Many global governments are pushing toward renewable solutions to move away from fossil fuel dependency, especially with the Russian-Ukraine war complication.
As vehicle production increases with electronic powertrains and components, automotive demand continues rising. The influx of electric and hybrid vehicles means more electric charging stations, which also require silver. Every green movement seems to push silver prices higher and higher.
Conversely, many expect to see slowed jewelry demand levels, especially in the United States, as the economy dwindles and citizens reserve their funds for other matters, like travel, which continues to increase in popularity. After huge demand levels in 2022, the silverware and jewelry industries will likely calm down in the coming year.
In 2022, silver demand increased by 17% to 1.24 billion ounces, including 352 million ounces from the physical investment sector. This year, analysts expect approximately 295 million ounces in physical investment demands, making it the third-highest year on record. Price stability appeals to many investors seeking a less volatile investment class during this year’s poor economic conditions.
Silver demand is not the only thing impacting its prices; supply levels affect rates just as much. Analysts expect the silver supply to increase by 4% this year, creating a record high of 1.055 billion ounces. Mine production alone may increase by 5%, contributing to 873 million ounces, the highest output level since 2016.
New mines in Mexico with high production rates combined with the silver by-product coming from Chile gold mines may contribute to the high silver expectations for the coming year. Conversely, Peru’s production may lessen due to operational suspensions from civil unrest. Analysts expect silver recycling volumes to increase by a modest 3% due to reduced resales from silverware and jewelry scrap supplies but increased industrial efforts.
The silver market reached its first deficit period in six years in 2021. Deficits occur when the supply levels cannot reach demand rates, resulting in exceptionally high prices. The deficit reached a record-high demand of 253 million ounces in 2022.
Analysts expect the deficit rate to dip in 2023 to about 119 million ounces, still creating an excellent environment for high prices, though less impressive than last year.
Silver production relies on many external factors, making demand responses excessively complex. As demand rises, silver mines cannot just produce more materials.
Rather, silver production depends on zinc, gold, and copper mines. Silver mines cannot produce more unless zinc mines do as well. Regardless of how demand rises, the supply chain cannot immediately respond due to silver’s complex production process.
Analysts predict a loss of 100 million ounces of silver in the next five years as demand continues growing and the supply rates cannot keep up. While certain industries, like jewelry, may not increase in 2023, the largest silver demand segment will. Industrial demand constitutes more than half of silver’s market, and analysts expect it to continue rising in the coming year.
What does all of this mean for precious metals investors? While silver demand will continue increasing in the coming year, so will supply, but only by a small amount. The expected rate at which silver supply will increase in 2023 cannot compare to how much demand will soar.
Since supply will not be able to keep up with demand, the deficit will continue, and prices will keep rising. Analysts responding to the London Bullion Market Association survey expect silver to rise by 8.8% in 2023 from $21.73 to $23.65 per ounce, with some estimating as high as $27 per ounce.
Many factors influence how these predictions play out, though most expect a positive silver performance in the coming year. As always, investors should consult their financial advisors before making any portfolio decisions.