Demand for this precious metal has been increasing due to its applications in the photovoltaic and semiconductor industries, which are growing sectors. In the last five years, demand for silver has increased by 30%, and in 2022 its value rose 10%.
Although it is no patch on its 'older brother' gold, in terms of jewelry or as a store of value, silver is looking shinier in the midst of the megatrends: digitalization, sustainability and changes to the population pyramid.
Due to its chemical composition, silver is one of the best electric conductors of all metals, making it very useful for manufacturing electric batteries and solar panels. It is also one of the raw materials used in electronics for the production of chips and in the healthcare sector, for cosmetics, medications (antibacterial property) or as a disinfectant of water and food. In fact, half of its applications are industrial, compared to 10% of gold.
This usefulness in production sectors with long-term prospects has driven its demand, which has grown by 30% in the last five years, according to The Silver Institute, an international association that expects it to stand at 1.167 billion ounces this year, its second highest figure behind the record last year at 1.242 billion.
“Developments such as electric vehicles, the growing adoption of 5G technologies and government commitments to green infrastructure will help industrial demand overcome macroeconomic obstacles”, the organization highlights.
Investor potential
Although gold is one of the most typical safe haven assets for investors in periods of uncertainty, both precious metals have a high correlation, and this silver forecast is leading many managers to consider it to protect portfolios.
In 2022, compared to the slump suffered by equities and fixed income, this metal proved to be more defensive, with appreciation of almost 10%, while gold did not reach half of that. In the first half of 2023, silver is winning by far, with a rise of around 35% versus 10%. For more perspective, in the last five years, its price has fallen behind its older sibling, and has recovered more than 45%.
The London Bullion Market Association's forecast survey is more optimistic regarding pricing for the rest of the fiscal year. The ounce is currently priced at around $22 and the analysts' consensus is $35. There are companies that expect silver to perform better than gold next year, due to the bandwagon effect of the yellow metal and industrial demand, and to reach $100 in a five-year period.
“If we pay attention to the evolution of both metals in the market cycles, we see how when we are in a bullish cycle for these raw materials, silver rises more than gold, whereas, if we are in a bear period, silver tends to decline to a greater extent”, explains the precious metal distributor CIODE, emphasizing that historically, the white metal “has always been effective as a commodity to safeguard assets. In times of war, inflation and other crises, currencies tend to devalue, while precious metals retain their intrinsic value".
One factor against silver is its greater volatility, as it is correlated with the future of the economy. Therefore, if there is a recession, it will suffer to a greater extent. In any case, it is much more affordable than gold, whose price is close to its maximum of $2,036 an ounce, and can quickly be turned into cash.
Ranking of countries with the largest silver reserves in 2022 (thousands of metric tons)
