Breakout or Fake-out: Is this Silver’s Golden Moment?
„I think silver is the biggest bargain on planet earth.“
Robert Kiyosaki
- Total silver demand fell by 7% in 2023, as jewellery, silverware and net physical investment demand categories retreated from 2022 highs. This offset the 64% yoy rise in silver’s solar PV demand.
- A 1% increase in recycling and a -1% decrease in mine production rendered supply insufficient to meet total demand in 2023, producing a 3rd consecutive supply deficit of 184.3 Moz.
- Silver’s supply deficit will widen to 215.4 Moz in 2024, as China dominated solar PV becomes the largest silver demand category with 232 Moz consumed. This will further erode above ground stockpiles.
- Silver has outperformed gold in 6 of the last 7 silver bull markets since 1967, but will rely on interest rate cuts, in addition to gold’s continued rise, for investment demand to be meaningfully enticed.
Introduction
There are brief periods during economic cycles when catalysts converge to produce generational investment opportunities. For silver, these “golden moments” have been characterized by explosive highs, separated by decades of stagnation. In fact, 2023 saw more of the latter, as the silver price displayed an indifference towards its otherwise excellent fundamentals, which at that time, included 3 consecutive years of supply deficits. Despite this, silver is turning over a new leaf in 2024.
Silver (Nominal), and Silver (US CPI Adjusted – March 2024), in USD, 01/1970–03/2024
Source: Reuters Eikon, Incrementum AG
Namely, the embers of vindication were visible in the silver price from February this year, as a USD 22.11 annual low functioned as resistance for a sharp rise to a 3-year high of USD 28.89 by April. Still, the nascent “shine” of the silver price, which we rhetorically questioned in last year’s In Gold We Trust report [1], could either dull or glisten in light of the forthcoming market conditions. Therefore, the following chapter will conduct a supply-demand analysis to determine silver’s prospects.
Silver’s Solar Eclipse
Starting with what will be silver’s largest demand segment by 2024, solar photovoltaic offtake consumed 193.5 Moz of silver in 2023, representing a 64% increase from 2022 and a quadrupling over the last decade. This unprecedented growth came in the context of a 32.2% rise in global solar capacity additions between 2022 and 2023 – the year in which solar contributed 345.5 GW, or nigh on three quarters of renewable capacity additions globally.
Global PV Silver Demand, in moz, 2018–2024e
Source: The Silver Institute, Incrementum AG
In part, silver’s stellar demand growth from solar PV can be explained by the opening line from our chapter on silver in the In Gold We Trust report 2023: “Silver works when government policy is favorable towards it.” [2] In the US, this is observable in the Biden administration’s Inflation Reduction Act, which pledged a 30% tax credit for those who install a PV system from 2022 to 2032. As such, 2023 saw a record 32.4 GW of US solar capacity additions, marking a 37% increase from the previous record in 2021.
That said, the US’s efforts waned in comparison to China, whose 63% share of 2023 global solar capacity additions broadened Xi’s solar stronghold by a record 216.9 GW. This dwarfed the 87.4 GW of solar capacity commissioned by China in 2022 and amounted to more than the world’s capacity additions in 2022. Not to mention, China’s capacity additions, in the past year alone, were 23.8% more than the entire 175.2 GW capacity of the US – the world’s second largest solar market.
Undoubtedly, this renders China’s solar industry as a key determinant of silver’s expected fourth consecutive annual supply deficit, and by extension, the critical foundation for the further development of the silver price. This is evidenced further by China’s 80–95% share of global solar PV supply chains, which allows President Xi to price Chinese solar panels at 50% lower than Europe, and 65% cheaper than the US, by virtue of vastly superior economies of scale.
In contrast, Europe – the supposed bastion of net zero – produces less than 3% of the necessary solar panels to achieve their goal of 42.5% renewable energy generation by 2030. Therefore, if China cannot maintain record low solar panel prices to offset potential increases in the silver price, adoption of silver-laden solar panels may slow. As part of this, some level of sustained disparity between solar capacity and demand will be an essential condition for the affordability of solar panels.
Solar Panel Production and Installation Projections, in GW or equivalent, 2023
Source: China Photovoltaic Industry Association, Incrementum AG
As for why this capacity may be reduced, Longi, one of the world’s largest, Chinabased, solar panel manufacturers stated in March that it expected to cut 5% of its 80,000-strong workforce. Meanwhile, China’s 5 largest solar firms were purported to have “high” or “very high” exposure to the Xinjiang region, where alleged human rights violations are provoking a potential Western reshoring of solar capacity, as illustrated by the US’s passing of the Uyghur Force Labor Prevention Act in 2023.
Notwithstanding this, the concern of a reduction in China’s solar capacity is largely confined to smaller manufacturers. This trend is facilitating industry consolidation amongst larger firms, as evidenced by Chinese solar firm Tongwei, who announced plans for a USD 4bn solar factory in December. Simultaneously, Chinese firms, Jinko Solar and Longi, are sidestepping the threat of Western protectionism by establishing their own supply chains in Vietnam, Malaysia, India, and even the US.
Therefore, China is evading reduced solar capacity by astutely relocating to other countries whilst counting on its largest solar manufacturers to offset the collapse of smaller firms. At the same time, President Xi is refraining from economic stimulus, instead depending on growth from industries like solar to manufacture his way out of an economic downturn. This “do or die” strategy is precisely why China’s solar capacity is set to grow immensely, to 1TW by 2026.
Installed PV Capacity in China, 2018–2026e
Source: Rystad Energy, Incrementum AG
Consequently, silver investors should feel emboldened: At 1TW of solar capacity in 2026, China will have consumed a substantial 685 Moz of silver, based on calculations from First Majestic, which state that 685,000 Oz of silver are required to generate 1 GW of solar capacity. Moreover, even in a scenario where President Xi’s gamble falls flat on its face, emerging markets stand ready to take on the baton from China.
Firstly, the IEA expects India to witness the largest energy demand growth of any country or region in the world over the next 30 years, as an “expedited auction schedule for solar PV” and “improved financial health of distribution companies” delivers “accelerated growth”. As part of this, Prime Minister Modi’s focus on India’s Rooftop Solar Program should add considerably to India’s rooftop solar panel capacity, which grew from 1.8 GW in March 2019 to 10.4 GW in November 2023.
Furthermore, Adani Green Energy just unveiled the world’s largest renewable energy plant in India: At 5 times the size of Paris (an incredible 500 square kilometres, mostly consisting of solar panels), its capacity is set to expand by at least 5GW every year. In part, this explains the record 70.7 Moz of silver imported by India in February 2024 – the equivalent of 64% of the country’s annual silver imports in 2023, and more silver than the US Mint produced in American Silver Eagle coins over the past three years combined.
Coinciding with this, the IEA expects Brazil’s solar capacity – which reached a record in 2023 – to be boosted further by the displacement of government-run auction schemes by free-market-based bilateral agreements. Here, 65% of solar capacity is in the pre-construction phase, which if completed, would see silver become a beneficiary of what Reuters project to be a fivefold increase in Latin America’s solar capacity, growth that is second only to East Asia’s.
Solar Power Capacity in Pre-Construction by Region, in MW, 2023
Source: Global Energy Monitor, Incrementum AG
Critically for silver investors, this means that global solar capacity will outstrip demand for the foreseeable future. This will ensure the continued affordability of solar panels, which allow room for the silver price to increase, without compromising silver offtake. Moreover, even as China’s rate of new installation growth is forecast to slow from 217 GW to 190 GW next year, solar’s consumption of silver is set to rise 20% in 2024 to a record 232 Moz.
Notably, this comes as more silver is used per solar panel. For a more extensive reminder of this dynamic, we refer to our chapter on silver in the In Gold We Trust report 2023.[3] In short, the previously preferred solar panel technology, PERC, contains 80 mg of silver per panel and is being increasingly displaced by solar panel innovations boasting a higher silver loading. These innovations, referred to as TopCon and HJT, contain 100–120mg and 200–200mg of silver per solar panel, respectively.
Silver Usage per Solar Panel, in mg
Source: Silver Institute, Incrementum AG
According to Bank of America, TopCon will increase its market share of silver PV technologies from just over 20% in 2023 to more than 50% in 2024. Extrapolating out further, TopCon is forecast to account for an 80% market share by 2025, before it cannibalizes what is left of PERC’s share in 2026, finishing up with a 90% monopoly over the market. Importantly, this additional 20–40 mg of silver per solar panel could be key for the silver price to sustain its redemptive trajectory.
Still, failing to consider thrifting and substitution would be doing a disservice to investors. Thus, according to research published in the journal Progress in Photovoltaics , “Plating is an alternative silver-lean metallization solution for industrial silicon solar cells by mainly using copper to form metal contacts”. [4] This suggests that silver may be replaced by copper, but the authors Yuan-Chih Chang and Yuchao Zhang note that challenges remain:
The material cost of copper is about 1% of that of silver… However, despite the promising performance benefits of plating, the major deviation away from industrially preferred printing technology, the added complexity of manufacturing, waste management and high capex make the implementation of plating technology in mass production challenging and have yet to obtain any significant market share.
Therefore, as copper-plated solar panels remain the most likely alternative to silver, yet presently face a complicated and cumbersome road to market, TopCon is likely to deliver on forecasts and become the preferred choice by industry. As a result, the silver price looks to have found a solid first line of defense in solar, which as the legendary German footballer Franz Beckenbauer would provide stability and drive until the deadlock was broken.
Ancillary Industrial Demand
Beyond this, silver industrial demand also stands to benefit as the transition to hybrid and electric vehicles ensues. As we noted in last year’s In Gold We Trust report, EVs contain 10 to 35 grams more silver per vehicle than ICE vehicles, as well as 16 to 32 grams more silver than hybrid vehicles.[5] Going forward, the Silver Institute projects this usage to increase further, thanks to silver’s quality as “the metal with the highest electrical conductivity”.
In terms of exact quantities, the Silver Institute forecasted in October 2022 that annual silver demand from the global automotive sector would approach 88 Moz (2,500 tonnes) by 2025. This is almost concurrent with the Bank of America and Bloomberg’s 2023 projections for car manufacturers to consume around 3100 tonnes of silver a year by 2025, at which point, over 50% of silver demand is expected to be derived from non-ICE usage.
Prior to this threshold being reached, silver demand from car manufacturers is still forecasted to increase by roughly 250 tonnes between 2023 and 2024. During this period, S&P Global estimates 3.6 million more units per year of battery electric passenger vehicles will be sold globally, rising from 9.6 million units in 2023 to 13.3 million by 2024. Subsequently, this would see the BEV share of global passenger vehicle sales rise from 12% to 16.2%.
Estimated BEV Market Share, 2024
Source: S&P Global Mobility, Incrementum AG
If these projections come to fruition, automotive sector demand will join solar in its exploitation of a struggling silver supply. However, it is worth noting that BEV sales are encountering short-term headwinds: Q1/2024 sales of China’s largest EV manufacturer, BYD, fell 43% compared to the fourth quarter of 2023 whilst Tesla also notched its first year-over-year quarterly sales decline in nearly four years, with a 9% decrease in vehicles sold.
Despite this, there are emerging industrial applications that stand to reinforce silver demand over the long term. In 2023, Oxford University researchers discovered that morphologically controlled silver nanoparticles could be used as a substitute for platinum in PEM electrolysers. According to the study, this resulted in “higher rates of hydrogen production at higher applied potentials”, whilst also “significantly decreasing the cost of PEM electrolyser electrodes”.
In addition to this, control rods comprising an alloy of 80% silver, 15% iridium and 5% cadmium are the preferred choice for pressurized water reactors, which account for 64% of operational nuclear reactors and 84% of those under construction. Therefore, as an estimated 56,000 oz of silver are required for every 1 GW of nuclear energy added, commitments made at COP28 to triple nuclear capacity by 2050 from 413GW to 1,239GW would see 23 Moz of silver consumed.
Ultimately, the above-noted industrial versatility is precisely why a group of silver mining stakeholders recently came together to call for silver to be included in the next edition of Canada’s critical mineral list. Doing so would follow in the footsteps of France, who already identified silver as a critical mineral as part of its 2021 assessment. However, for the same to occur in Canada, a number of criteria must be fulfilled.
Naturally, an open letter intending to satisfy these criteria was penned by First Majestic’s ESG director, Jillian Lennartz, to the Canadian Minister of Energy and Natural Resources, Jonathan Wilkinson. With signatures from the Silver Institute, as well as 19 silver mining company CEOs, the letter makes a compelling case for silver to be acknowledged on Canada’s critical mineral list, which Natural Resources Canada expects to be published by the time the House rises in June.
A green light from Canada would be complementary to the existing multilateral recognition of silver as a critical mineral. As outlined in the open letter, those who have done so include the World Bank, OECD, IEA, and IRENA – all of whom view silver as an essential component in low-carbon technologies. Consequently, silver’s industrial demand could rise further, as the “insulating effect” of government policy ensues.
Gold-Silver Dynamics
As a result of the growth in silver’s aforementioned industrial component, some experts have put forward the notion that silver may be decoupling from its historical monetary quality, and by extension, from gold. Endearingly referred to by some corners of the silver community as “Darth Silver”, the esteemed analyst Lobo Tiggre has encouraged investors to entertain this possibility, noting that “silver looks more like copper than gold” in the intraday charts.
Gold, Silver and Copper, 100 = 11/01/2023, 11/2023–04/2024
Source: Reuters Eikon, Incrementum AG
Undeniably, whilst silver has traded closely with gold over the last 6 months, it has also danced hand in hand with copper. This latter friendship has strengthened in recent decades, as silver and copper prices rose and fell in the same direction on an annual basis for every single year from 1998 to 2020, compared with only 5 out of 13 times from 1985 to 1997. Importantly, cosying up to copper may not be deleterious for the silver price, especially if a wave of inflation is on the horizon.
For example, Bloomberg analysis shows that for every 1% rise in the CPI since 1992, copper prices rose 18%. In fact, copper outperformed all other major asset classes aside from energy during this period, in which it rose twice as much as gold. More recently, analysis from Global X ETFs proved that this continued into the high-inflation environment of 2022, as copper sustained a 0.75 correlation with the 10-year breakeven inflation rate, dating back to 2001.
Therefore, if silver joins copper in a commodities reflationary boom scenario, it may not need its monetary component to outperform gold. However, the nuance here is that a recession could dampen silver and copper’s industrial demand: Our analysis in the In Gold We Trust report 2023, based on the Incrementum Recession Phase Model, showed silver returning an average -9% in the 8 recessions dating from 1970 until 2000, although silver tended to pick up in the later stages (phase 5) of a recession, averaging a return of 17.4%.[6]
Despite this, whether you see present-day silver as rich man’s copper or poor man’s gold, silver’s industrial demand growth does not necessarily equate to the death of its historical monetary component. Namely, history casts its vote in favor of silver’s ability to rise in response to price leadership by gold – a byproduct of the strong historical correlation between gold and silver prices, which has averaged 0.92 since 1988, 0.87 since 2000, 0.55 since 2010, and 0.82 since 2021.
Gold/Silver Correlation, 01/1971–04/2024
Source: SD Bullion, Reuters Eikon, Incrementum AG
As outlined in the In Gold We Trust report 2023, this correlation has often brought about a delayed “silver slingshot effect” on the back of gold price increases.[7] More specifically, silver outperformed gold in 3 of the last 7 gold bull markets spanning from 1967–68 to 2015–2020. These were in 1976–1980, 1993–1995, and 2001–2011. However, silver went on to outperform gold in 6 of the last 7 silver bull markets from 1967–2021, with 1971–1974 being the only time silver’s relative growth did not exceed gold’s.
Admittedly, the last silver bull market, ending in early 2021 with a USD 29.42 silver price, was preceded by a substantial drop in the silver price to USD 11.77 in March 2020. This saw the gold/silver ratio balloon to a historical high of 123.4, leaving many pundits questioning silver’s identity. However, the silver price returned 250% from March 2020 to February 2021, as interest rates were slashed. This helped silver to average a 332% return over the last 3 rate cutting cycles.
Silver (lhs), in USD, and Federal Funds Rate (rhs), 01/2000–04/2024
Source: Reuters Eikon, Incrementum AG
Perhaps, then, just as gold serves as the monetary refuge for financial institutions during times of rate-cut-induced inflation, silver can also fulfil the same remit for the general population. As evidence of this, Türkiye’s interest rates were cut from 19% in September 2021 to 8.5% in June 2023, as inflation soared from 19.5% in September 2021 to 85.5% in October 2022. In response, Turkish silver bullion imports almost tripled from around 400 tonnes in 2021 to 1,100 tonnes in 2023.
At the same time, the US Federal Reserve faces the prospect of rate cuts this year, which could unleash a second wave of inflation. This would come in the context of a financially challenged US consumer, who has seen the real value of their dollar erode substantially. This also comes at a time where Costco are ‘reading the room’, having started selling 20-coin silver eagle tubes in December 2023. Costco’s “sales have been brisk for the 20-coin silver eagle tubes”. Naturally, silver’s accessibility, and more importantly its relative affordability versus gold, could spur retail investment demand from low- to mid-income US citizens, who may opt for silver as a means of protecting their purchasing power.
In fact, this is a trend that has already extended itself in countries such as Egypt. Namely, the price of a gram of 21 carat gold rose by over 120% to 3,875 Egyptian pounds (USD 126) between this January and the last. In a country where roughly 60% of the 105 million population is estimated to be below or close to the poverty line, this has provoked some Egyptians to substitute gold for silver. Still, total silver jewellery demand took a tumble in 2023, from its decade high of 234.5 Moz in 2022. However, it is expected to rebound by 4% in 2024 and may be incentivized to do so by the extent of silver’s historical undervaluation.
The relative discount of silver is evident in the research of Mike Maloney. Silver is the only metal to have not surpassed its 1980 highs in a group that includes gold, copper, lead, nickel, zinc, tin, iron, platinum, palladium and rhodium. More specifically to gold, a return to the 30:1 historical median of the gold/silver ratio would correspond to an USD 80 silver price, based on a gold price of USD 2,400.
Silver Price Matrix, in USD, Gold/Silver Ratio (x-axis), and Gold (y-axis), in USD
Source: Incrementum AG
Importantly, whilst a return to a 70:1 gold silver ratio makes for a far more sober estimate, the 30:1 median dates back to the 1800s, and is more conservative than the 19:1 abundance of gold to silver in the earth’s crust. Moreover, whilst it would be foolish to discount the possibility of a return to the 123:1 gold/silver ratio achieved in 2020, one must also be cognizant of recency bias – an ignorance of silver’s historical tendency to (eventually) outperform gold.
Therefore, by virture of silver’s historical relationship with gold, the silver price is not only likely to follow gold’s as it charges into unchartered teritory, it also possesses an 85.7% chance of outperforming gold in a silver bull market, based on data since 1967/68. As part of this, silver’s investment demand will be a fundamental contributor: Akin to Usain Bolt’s reaction to the sound of the starter’s gun, it will be quick off the mark to buoy the silver price, once interest rate cuts and inflation take hold.
Silver’s Supply Shortfall
All things considered, with the above drivers, silver demand will have exceeded silver supply for four consecutive years by the end of 2024. Typically, the result of a structural deficit of this kind is a higher price of the commodity in question, as is observable in the uranium and cocoa markets of late. Until recently, silver was evading the same fate, thanks to aboveground inventories meeting the demand that mined production and recycling could not satisfy. Now, however, we are starting to see the unsustainability of this solution.
Silver and Cocoa, in USD, and Sprott Physical Uranium Trust, in CAD, 100 = 01/01/2018, 01/2018–04/2024
Source: Reuters Eikon, Incrementum AG
Aboveground inventories are the umbrella term for silver inventories held by futures exchanges, ETFs, and private owners. Interchangeably referred to as secondary supply by Peter Krauth, aboveground inventories, in their full form, are virtually impossible to quantify. This is due to the tendency of private owners to refrain from publicly declaring their silver holdings, which only become visible once they reappear via recycling or on the inventories held by exchanges.
Despite this, what is visible is the decrease in silver inventories held on futures markets since early 2021: At the COMEX, silver inventories peaked at just under 400 Moz in January 2021, and have since fallen by nearly 30% to 291 Moz as of April 15. Importantly, registered silver inventories, which refers to silver that is actually available for delivery, have also fallen from 150 Moz in early 2021 to 46.7 Moz as of April 15, showing that silver is becoming increasingly difficult to obtain.
Meanwhile, silver inventories on the Shanghai Futures Exchange tell a similar story, having reached a high of just under 3,100 tonnes (99.7 Moz) in January 2021, before plummeting 68% to 993.6 tonnes (31.9 Moz) as of April 16. As with the COMEX, registered inventories on the Shanghai Gold Exchange fell from 167 Moz in mid-2020 to 45 Moz as of January. Notwithstanding this, the LBMA is the most significant factor in a potential silver squeeze.
LBMA London Vault Silver Holdings, in moz, 07/2016–03/2024
Source: LBMA, Incrementum AG
Accounting for around 75% of silver inventories within the largest global trading venues, LBMA silver inventories peaked at 1,180 Moz in June 2021 and have since fallen some 30% to 823 Moz as of March 31, 2024. However, just as with registered inventories at the COMEX and SFE, this number fails to wholly represent the silver that is available for delivery. Instead, the LBMA silver inventories figure is around 260% more than what TD Securities posit as a “free float” of just 311 Moz of silver.[8]
As part of their reasoning, TD Securities claim that “Headline LBMA inventories overstate the amount of silver that is freely available for purchase”, since it “includes bullion held by UK-vaulted ETFs, which they estimate at close to 500 Moz of the LBMA’s total silver inventories. As per these assumptions, TD Securities notes that the LBMA free float of silver would be depleted in the space of 2 years, based on the current pace of silver demand growth at a 3yr CAGR.
Years to Free-Float Depletion from Total Demand Growth, 2019–2023
Source: TD Securities, WSS, Metals Focus, LBMA, Incrementum AG
Shockingly, 163 years of demand growth would have been required to deplete the LBMA free float in 2019. However, as the combined 2021 and 2022 deficits more than offset the cumulative surpluses of the past 11 years, silver is unprecedentedly scarce in 2024.
Almost certainly, this level of buying activity, if realised, would reverberate across the Atlantic, where the largest silver ETF, SLV, has already bled almost 40% of its silver inventories since peaking in 2021 at around 670 Moz. Until February, the price of SLV had remained unperturbed in the face of falling inventories. However, a sharp increase in the SLV price can be observed over the last 2 months, at a time when other ETFs are also restocking inventories.
Wisdom Tree Silver ETF Inventory, in Moz, 03/01/2024–03/18/2024
Source: Reuters Eikon, Incrementum AG
So long as the silver is available to replenish inventories, a price squeeze can be avoided. However, as exchanges have been drained yet continue to be relied upon to plug the gap in the supply deficit, a scenario could arise where exchanges are unable to source the silver required to satiate deliveries. In this event, it may only take one of the notoriously resolute SLV investors to stand for delivery, at which point silver prices and premiums would increase, perhaps dramatically, as the news of insufficient physical silver transmits itself across the market.
Of course, this is unless the unknown quantity of privately held silver can be lured out of the opaque hole in which it lives. Although, the prisoner’s dilemma here is that private holders may only part with their silver if a higher silver price provides the incentive. Incidentally, the same applies to recycling, which despite rising marginally by 1% in 2023, is expected to remain flat in 2024 at 178.9 Moz, and is therefore unlikely to close the deficit until a higher reward for recycling transpires.
As a result, the only remaining solution to increase supply and keep higher silver prices at bay would be an immediate increase in mine production. There are some ‘shovel-ready’ projects that will contribute to domestic increases in silver mine production in 2024. For example, the US is forecasted to increase 3.5 Moz yoy as Coeur Mining’s Rochester expansion accelerates, and as Hecla’s Lucky Friday recovers after last year’s temporary closure. Meanwhile, Mexico is expected to recover 5.6 Moz since last year, as Newmont’s Peñasquito mine returns to optimal production after last year’s strike action; and Morrocco should also see a yoy increase of 5.5 Moz, as Aya Gold and Silver’s Zgounder mine comes on-stream.
Still, an expected 17.9 Moz decrease in Peruvian silver mine production for 2024, derived from hold-ups at the projects of Hochschild Mining and Buenaventura, is set to obviate the above increases, resulting in a forecasted 0.8% year-on-year decrease in global silver mine production to 832.5 Moz in 2024. This is set to fall short of total demand, manifesting a 2024 silver supply deficit of 215.3 Moz – approximately 17% more than 2023’s 184.3 Moz deficit.
Therefore, as a widening deficit further erodes secondary supply in 2024, the increasing scarcity of silver will demand an increasingly higher price. This stands to eventually reverse the chronic capex shortages that have plagued primary silver miners, as profit margins become more attractive than in previous years. For context, the AISCs of ten leading silver miners are forecasted to average USD 18.89 from 2022 2024,[9] during which the silver price will average USD 23.10 on annual basis.
Going forward, however, Bank of America forecasts a USD 30 silver price by this time next year. This will be accompanied by a decrease in AISCs to an average of USD 16.69, offering far more incentive for capital to pour into primary silver miners, who account for 27.8% of total silver mine production. This would also come at a time when they are already historically undervalued, as evidenced by the divergence between the silver price and the major silver miners ETF, SIL
SIL/Silver Ratio, 01/2011–04/2024
Source: Reuters Eikon, Incrementum AG
Conclusion
In summary, the conditions for a materially higher silver price are strengthening with each year of supply deficit that goes by. Thanks largely to industrial demand derived from solar PV, and an expected gold-linked monetary demand from persistent inflation, we expect that a continued depletion of secondary supply will make it hard to meet silver demand in the years to come.
Frankly, this unsustainable trajectory will be characterized by demands of higher silver prices from recyclers and private holders, until mine production rises sufficiently to close the supply deficit. Although, as we mentioned in the In Gold We Trust report 2023,[10] mining project development lead times for silver average 15 years. Therefore, higher silver prices for longer is the likely outcome here.
Importantly, several variables could either prevent or delay this scenario. For one, a global recession could see silver demand fall to the extent where a supply deficit becomes a surplus and aboveground inventories are not needed. However, total silver demand is expected to rebound by 2% in 2024, and even if that recessionary scenario did arise, accompanying decreases in mine production, and thus supply, would likely result in the maintenance of a deficit.
On this basis, the demand side is unlikely to be the principal obstruction to rises in the silver price. Instead, the factors standing in the way of a higher silver price would be a rise in silver recycling, a near-term increase in silver mine production, or the sale of privately held silver to replenish inventories on exchanges. Yet, much to the dismay of silver bears, the incentive of higher silver prices will be an unavoidable prerequisite for all 3 of these supply-side phenomena to materialize.
As a result, we are bullish on silver and silver miners for 2024 and beyond, both as a uranium-esque supply-deficit play and as a high-beta play on gold.
[1] See “Silver’s Time to Shine?,” In Gold We Trust report 2023.
[2] “Silver’s Time to Shine?,” In Gold We Trust report 2023.
[3] See “Silver’s Time to Shine?,” In Gold We Trust report 2023.
[4] Chang, Yuan-Chih et al.: “Silver-lean metallization and hybrid contacts via plating on screen-printed metal for silicon solar cells manufacturing”, Progress in Photovoltaics, March 22, 2024
[5] See “Silver’s Time to Shine?,” In Gold We Trust report 2023.
[6] See “The Showdown in Monetary Policy,” In Gold We Trust report 2023.
[7] See “Silver’s Time to Shine?,” In Gold We Trust report 2023.
[8] See TD Securities: “Market Musings”, April 2, 2024
[9] BMO Capital Markets: „The SilverPages“, April 2, 2024, p. 6
[10] See “Capex Comeback: A Raging Bull Market for Commodities Beckons,” In Gold We Trust report 2023.
