Market Outlook for Silver Improves as Supply Deficit Grows

Similar to gold, silver has been performing well this year, recently reaching a new highest price. This last month, the prices of the metal have increased by almost 20%, surpassing other precious metals like palladium, platinum and even gold.

The metal’s boost comes as the value of the U.S. dollar struggles, having declined by over 9% since September 2022.

It is expected that silver will continue on its present trajectory until the year’s end, assuming the Fed slashes interest rates. Silver inflation-fueled rally has many people hopeful that the metal may finally pass its highest price of $30/ounce, last recorded almost a decade ago.

There’s truth to back this, with evidence suggesting that silver often outperforms gold when inflation is extremely high.

Expectations of a recession are also furthering the metal’s investment appeal. The same goes for the supply deficit in the metal’s market, which will support a further increase in its price.

Data from the Silver Institute shows that the demand for silver globally has increased 38% since 2020 as economies around the globe recover from the coronavirus pandemic.

In 2022, the metal’s demand rose by 18% to reach 1.24 billion ounces while supply remained unchanged.

Figures from the latest World Silver Survey show that the international silver market was under-supplied by over 237 million ounces last year.

Experts expect that this demand-supply gap will persist for the foreseeable future, with the Silver Institute predicting that silver’s demand in 2023 will hit 1.17 billion ounces, against a forecasted supply of 1.02 billion ounces.

The demand for the metal is primarily being driven by its use in industrial sectors like solar cells, electronics and automotive and soldering. Estimates show that roughly 60% of all silver produced today is used for industrial purposes while the remaining percentage is directed toward investments.

The Silver Institute expects that in the next 10 years, interest in the industrial metal will pick up as countries globally transition to the use of renewable energy.

This is because silver has the highest thermal and electrical conductivity, making it suitable for solar panels.

While some players in the industry are bullish on silver, others prefer to be cautious about the metal’s outlook in the short-term.

MKS PAMP posits that the price of silver may decline to $18/ounce before the end of the year, a sentiment that the Silver Institute shares.

Inflation falling away faster than expected or fears of a recession softening industrial demand are the basis of this argument.

Despite these expectations of a dampening in the market before silver prices soar again, producers like Hecla Mining Company (NYSE: HL) are unlikely to be discouraged since commodity markets have been known to be cyclical with bull and bear markets coming almost like clockwork.

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