Silver's Big Moment: Industrial Demand Driving a Bright Future

(Kitco News) - Silver prices continue to struggle as economic uncertainty and restrictive interest rates weigh on investor demand; however, the market remains well supported as an industrial metal, according to the latest report from the Silver Institute.

In a report published Tuesday, the Institute said that despite the headwinds, global silver demand is expected to reach 1.2 billion ounces in 2024, which would be the second-highest level on record.

“Stronger industrial offtake is a principal catalyst for the rising global demand for the white metal, and the sector should hit a new annual high this year,” market analysts said in the report.

The Institute said that it looks for industrial silver demand to increase 4% this year to a record 690 million ounces as demand for solar energy and electric vehicles remain critical segments of support within the broader global green energy transition.

“Global P.V. installations significantly exceeded initial market expectations in 2023, with new capacity additions forecast to reach another record high this year. Silver offtake should also benefit from the technological breakthrough that has brought new, higher-efficiency N-type solar cells (with higher silver loadings) into mass production,” the analysts said in the report. “In the automotive industry, greater use of electronic components and investment in battery charging infrastructure will continue supporting silver offtake.”

At the same time, the Institute also said that the growing A.I. sector could lead to a new push for consumer electronics, which provides another avenue of support for the precious metal’s industrial side.

Looking at the jewelry sector, the Institute said it expects strong growth in India to drive jewelry consumption up 6% this year.

“A positive economic backdrop and consumers getting used to high rupee silver prices should underpin growth this year,” the report said. “In the U.S. and Europe, soft consumer sentiment may continue to weigh on jewelry consumption, but retailers’ stock replenishment will likely mitigate the impact on fabrication.”

The one weak spot in the silver market remains investor demand. The Silver Institute said it expects physical investment to drop 6% this year, falling to a four-year low.

“Solid economic growth and further gains in the U.S. stock market will be key drivers behind this weaker investor interest across all precious metal coins and bars,” the Institute said.

Silver prices have seen some sharp volatility in the first month of the new year as uncertainty over the Federal Reserve’s monetary policy stance has weighed on the market. Silver prices are still trying to recover from its recent selloff that saw the market test critical support near $22 an ounce.

Despite some bargain hunting, silver prices have been unable to hold consistent gains above $23 an ounce. March silver futures last traded at $23.005 an ounce, down nearly 1% on the day.

Although silver has struggled early in the new year, analysts at the Silver Institute remain optimistic that investment demand will return to the market and drive prices higher.

“This weaker investment is likely to be temporary, and silver’s positive fundamentals should encourage decent bargain hunting. Once the Fed starts to cut rates, most likely in mid-2024, silver investment should begin to recover,” the analysts said. “More importantly, with inflation on course to retreat towards the U.S. authorities’ official long-term target, the Fed is expected to signal further and accelerated easing next year. The impact of falling real yields and pressure on the U.S. dollar should also favor fresh silver and gold investment.”

Silver struggled Wednesday as Federal Reserve Chair Jerome Powell pushed back on market expectations for a March rate hike. Although the central bank has signaled easing this year, it said Wednesday that it will cut rates until it has “greater confidence that inflation is moving sustainably toward 2 percent.”

After leaving interest rates unchanged Wednesday, Powell, in his press conference, said that a March rate cut is unlikely and it’s not the central bank’s base case scenario.

This article originally appeared on Kitco News