2023 was a relatively lackluster year, silver largely traded on volatility between US$22 and US$25 per ounce.
The white metal started 2024 with less volatility and remained rangebound for the first eight weeks. Silver dropped to US$22.08 per ounce on January 21, marking its quarterly low.
Silver started seeing gains in March with the expectation that the US Federal Reserve was getting closer to lowering interest rates. Improving sentiment gave the precious metals markets momentum, causing silver to reach its quarterly high of US$25.62 on March 20, before continuing on to an 11 year high of US$29.26 on April 12.
These gains were reinforced by positive language following the banks March meeting that its rate policy was continuing to progress inflation towards the central bank’s target of 2 percent.
Even though it was unwilling to commit to dates, the Fed suggested it was done with rate hikes and it was expecting to make three cuts to its benchmark rate in 2024.
While gold captured attention as it set record prices in March and April, silver has produced better returns for investors. In an April 9 email to the Investing News Network (INN), Peter Krauth, editor of Silver Stock Investor and author of “The Great Silver Bull,” commented on the white metal’s performance during the quarter.
“Silver also typically lags gold, then catches up and surpasses it. We’re starting to see that happen in spades right now. Since the end of February, gold is up about 15 percent, while silver is up about 22 percent. Those are breathtaking gains in just a matter of weeks,” he said.
According to Krauth, these gains for the silver price came alongside decreasing inventories at the COMEX, London Bullion Market Association and the Shanghai Gold Exchange, where stockpiles have dropped 40 percent over the past three years.
“The same has happened to silver exchange-traded funds (ETFs) globally. My view is that large silver consumers are buying long contracts and silver ETFs, then taking delivery. That helps explain why the silver price didn’t rise in the face of ongoing deficits. But these inventories are being drained, and I think there may be 12 to 24 months left before they run out,” he said.
Even with decreasing inventories, Krauth still sees silver being held back, citing its increasing role as an industrial metal and concerns over a recession in 2024 as contributing factors to it not seeing stronger gains.
The thinning inventories that contributed to silver’s price gains through Q1 have come about have been driven by the white metal’s increasing demand from industrial sectors. The biggest contributing sectors have come from the energy transition, particularly the production of photovoltaics and electric vehicles.
Krauth pointed to the Silver Institute, a top industry association, which said silver is entering into a structural deficit for a fourth consecutive year in 2024, believing these shortfalls will continue for several more years.
According to the Institute’s data, India has been a critical driver of demand, importing 94 million ounces of silver in the first two months of 2024, including 71 million ounces in February alone — that represents nearly an entire month of global mine production.
While the Silver Institute notes that demand for silverware and jewelry in India remains strong, it also says there is a growing industrial demand as India sees an increasing focus on infrastructure development.
This comes alongside the new N-type solar cells that require greater amounts of silver entering mass production in 2024.
On the supply side, the organization is predicting a decline of 1 percent in total, with 1 billion ounces being made available. In addition, it is expecting recycled quantities of silver to remain flat at 178.9 million ounces. The biggest drop is expected to come from mine production, with an estimated total of 823.5 million ounces in 2024.
This differential suggests a widening deficit of 215.3 million ounces, a year-on-year increase of 17 percent.
Silver is primarily produced as a by-product of gold, lead, zinc and copper mines, and according to the Silver Institute these accounted for 595.2 million ounces produced in 2023. Meanwhile, primary silver mines produced just 235.2 million ounces.
With a contraction in mine output forecast for 2024 and increasing industrial demand over the next several years, the Silver Institute is projecting more tightness over the next few years, meaning limited relief on the horizon from new or existing operations.
Krauth sees two standout projects set to add millions of ounces over the next year.
Even when operations come online, the increases amount to tens of millions of ounces for an industry that requires hundreds of millions to overcome supply deficits.
Unlike gold, Krauth sees silver’s industrial applications holding a lot of upside, even though he believes the market hasn’t really come to terms with that, still largely viewing itas a precious metal. He also thinks the there is some opportunity for change on the horizon.
“I, along with the entire sector, will be watching closely to see whether silver makes the list or not. If it does, I think that would be a shot in the arm for silver. The broader investment community would pay more attention to silver’s significant structural supply shortages,” he said.
While its inclusion remains uncertain, Krauth is bullish on the white metal, but he also says he wouldn’t be surprised at a pullback this year.
More broadly, he thinks silver is in a sustained bull market and expects the price to continue to hold at US$28 and probably grow to US$30 in the second half of the year.
As silver sees upward momentum going into the next quarter, it may present new opportunities to investors looking for an alternative to gold, or taking advantage of the white metal’s increasing notoriety as an industrial metal.
Securities Disclosure: I, Dean Belder, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
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