The silver spot price has this week reached US$25 (about AU $37.70) per troy ounce.
Silver prices have been holding up well due to a combination of local and global factors. Some factors are directly related to silver supply, and some seem disconnected until you dig in.
Looking ahead, it’s likely that silver prices will continue to be influenced by a wide range of factors, including:
- Industrial demand
- Supply shortages
- Inflation rates
- Global economic uncertainty
Some analysts forecast silver’s spot price will stay above the US$25/oz threshold throughout 2024, even reaching US$30, the highest spot price in almost a decade. Others predict a correction, although it’s likely to be small and temporary.
Boab Metals (ASX: BML), as a near term silver mining company on the ASX, is looking forward to a busy year. Our outlook is optimistic based on extensive financial modelling and strong project economics.
Here are the big drivers behind silver’s recent price surge.
Quick note: Commodities markets are unpredictable, and these forecasts should not constitute financial advice. If you’re interested in investing in silver, consult a financial professional before making any decisions.
SILVER IS A KEY INDUSTRIAL ENABLER AND AN IMPORTANT BATTERY METAL
Industrial demand is one of the biggest sustained influences on silver spot prices.
Silver’s unsurpassed conductivity, malleability and stability make it a hot commodity for industrial and technological applications, including:
- IoT solutions
- Medical devices
- 5G deployment
We are well and truly in the technology age. More devices, connections and cables produced means more silver is required in factories worldwide.
Analysts at Capital.com point out that China’s loosening of COVID-19 restrictions has contributed to rising silver prices. As the world’s largest producer of technology such as chips, circuits and cables, production in China demands lots of silver.
Silver is also crucial to green technologies such as electric vehicle (EV) batteries and solar panels.
The amount of energy produced from solar panels could double in the next five years, and consumption of silver in the solar industry could grow by 85% to 185 million ounces in a decade.
Alongside solar, the EV market is growing rapidly. Each EV uses 25-50 grams of silver compared to 15-28 grams for combustion-powered vehicles.
As more countries adopt carbon reduction targets, silver mining companies like Boab Metals will be called on to supply more of the ‘white metal’.
SILVER SUPPLY IS CLOSE TO DEFICIT LEVELS
Spot prices are, broadly, the result of a supply and demand equation. When supply is tight, prices rise.
We have already seen deficits in silver supply throughout 2021 and 2022. According to The Silver Institute, this deficit is expected to ease in 2023 as new mining projects come online.
Last year’s deficit was a record-high 253 million ounces. This year’s projected 199-million-ounce gap is smaller, though still significant.
Australia has the largest share of economic silver resources. Our silver will be vital in meeting future demand.
The reality is that global silver reserves are low. There is also no clear replacement for silver in most industrial applications. At current consumption rates, some pessimistic outlooks give us 20-80 years before supply runs out entirely.
We hold a more optimistic position as a company poised to progress development at Sorby Hills, Australia’s largest near surface undeveloped silver-lead-zinc deposit. Silver is also highly recyclable, which will help to offset dwindling supplies over the next century.
INTEREST RATES AND INFLATIONARY PRESSURE
Inflation rates remain high, which has historically been good for silver prices. This is because silver is used as a hedge against inflation; people invest in silver with a view to its value increasing more than currency.
Due to the high inflation and increased interest rates analysts are predicting the US economy could enter a recession late in 2023/2024. If this does happen then the silver and gold prices will increase as the preferred store of value across the world.
INVESTOR SENTIMENT IS MATURING
As ForexLive points out, silver is used six times more often than gold in industrial applications. This is creating interest among investors, which in turn encourages more information to be published and shared.
(However, it remains to be seen whether this leads to a ‘decoupling’ of historically held views that gold and silver prices are tied.)
There are many ways to invest in silver. The spot price is in the spotlight right now, but what does it mean for people wanting to invest in silver?
Some investors do buy physical silver. They purchase silver bullion or coins, which they hold until price rises, or they need liquidity. Silver has historically been favoured as a hedge (safeguard) against inflation, as it can be more stable than currency over long periods. Sales of silver coins and bars for investment jumped by 36% to 278.7 million ounces, the highest level since 2015.
Other investors put their money in exchange-traded funds (ETFs). ETFs manage investments intending to generate above-average returns, which is especially attractive during economic uncertainty.
Silver ETFs might hold currency – such as bullion and coins – or invest in silver mining companies.
Alternatively, confident investors might strike out alone and invest in silver mining companies on the ASX. This requires a good deal of research. But if you back the right small-cap mining stock, the potential upside can be significant.
There is no universal “best way to invest in silver”. Each investor should consider their risk appetite and financial goals, and seek advice from a financial adviser.
IS NOW THE TIME TO INVEST IN SILVER?
The answer to this million-dollar question depends on which analysis you read. Commodity prices are hard to predict. There are too many complex intertwined factors at work, as well as the influence of investor sentiment.
If you are considering investing in silver, we have some helpful resources to help you understand the landscape and make an informed decision. We encourage you to visit our investor section to learn more about Boab Metals and the Sorby Hills Project.