Silver Prices Are Set to Benefit From Surge in Solar Panels and 5G

Silver could add some luster to portfolios in the new year.

Silver prices have surged this year—and more gains are likely.

Analysts see the white metal rising to $30 an ounce in the next year from the current $23.36, and even higher given the large-scale stimulus needed to revive economies. It would be a continuation of the trend this year, which has led to the surge in gold and silver prices as investors hunt for havens.

Gold grabs most of the attention, but silver acts in much the same way as its yellow cousin, namely as a hedge against a decline in the dollar. That has been the case this year, with bigger fiscal spending and near-zero interest rates as a result of monetary policy pressuring the dollar.

The $13 billion-asset iShares Silver Trust exchange-traded fund (ticker: SLV) is up 30% this year and 36% in the past 12 months. Silver is also important in manufacturing, with prices rising when the economic recovery leads to industrial demand.

Goldman Sach’s Mikhail Sprogis explained in a note last month that silver is a key component in the solar industry, which is poised for big growth. Solar investments account for 18% of silver industrial demand and about 10% of overall demand for the metal. Sprogis has a $30 price target on it.

President-elect Joseph Biden wants to install 500 million solar panels over the next five years. Goldman estimates solar installation will jump 50% from 2019 to 2023. Installations are also expected to increase overseas, especially in China.

Granted, higher silver prices might encourage solar-panel makers to find ways to use the metal more sparingly—as is already evident, Sprogis says. Newer panels have about 25% less silver by content, which will tamp down demand growth but not eliminate it, he says.

“All in all, over the next three years solar should boost silver total industrial demand by 2% in the base case and by 9% in a bull case.” If the bull case materializes, silver could see a 10% price boost, Sprogis says.

CIBC analysts are slightly more bullish, citing continued low interest rates and elevated government debt as “supportive of further significant price appreciation. CIBC has set a $32 price target over the next year.

The U.S. election outcome isn’t murky anymore, with Biden set to be inaugurated in January. But the economic recovery is far less clear, especially with new business restrictions in parts of the world where new coronavirus cases are surging.

Silver started the year at about $18 an ounce but tumbled to an 11-year low of $11.74 in March. By Aug. 6, it was back in the $20s and currently trades around $23. A $32 price target implies a 39% gain.

Citigroup analysts are even more bullish, with a $40 price target on silver over the next 12 months, driven by investor desire for safety as well as industrial demand once the recovery picks up. They see a return of the 2010-11 bull market in silver as demand rises 6% in China, from both industrial buyers and retail investors.

Chinese consumer spending should support higher jewelry and silverware demand given the holiday season and future celebrations like weddings. Citi estimates 12% growth next year on demand for jewelry and silverware.

Silver is also used in 5G network equipment, and the expansion of 5G networks will be a major driver of electronics silver demand over the next two years. “The rapid development of 5G network infrastructure and rising demand for high-speed internet access should become the new pillars” supporting the network upgrade and boosting silver, Citi analysts say.

Silver is also widely used in electric vehicles, from semiconductors to harnesses and displays. Pure battery-powered electric vehicles require more electrical control, which boosts their relative silver consumption.

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