Silver appears to be setting up for its strongest run in decades, thanks to the potential for rate cuts from the Federal Reserve (“Fed”) and 2024 shaping up to be a year of fundamental deficits. Silver has already surged to its highest level in over a decade, with gold also hitting record highs. The strong performance of both is largely driven by the momentum of expected interest rate reductions. However, some see broader forces such as monetary policy shifts, geopolitical risks, and the result of the US election shaping a turbulent economy where silver could shine as a store of value. On the fundamentals, booming demand from China’s solar and EV industries fuelled by the energy transition is adding to silver’s outlook, according to the International Energy Agency.
2023 saw silver’s industrial demand continue to rise, achieving a record due to high demand within the solar energy sector. Sluggish supply played a role in the previous registered deficit as well. Due to the possibility of medium term industrial demand growth and the lack of visible supply expansion, deficit circumstances may remain, with a fourth year of deficit seemingly on the horizon. The Silver Institute has already predicted a 17% supply-demand gap for 2024, driven by rising industrial demand, a rebound in jewellery and silverware, and slowing mining production and recycling.
In 2023, silver industrial output reached another record at 654.4Moz, up 11% YoY, amid higher-than expected Solar photovoltaic (PV) capacity increases. This year, global industrial usage is projected by the Silver Institute to grow by another 9%, driven again by green applications like solar panels.
In recent months, China’s silver demand has risen by over 20% (YoY). China’s silver industrial usage jumped 44% in 2023 alone and now accounts for 40% of global silver industrial demand. With over 80% of the world’s solar panels produced in the country, the outlook for silver remains bright.
The capacity of installed solar PV globally is expected to increase 125% from 2023 to 2030, according to Bloomberg NEF’s base case, with China accounting for most of this projected growth. Domestically, China is expected to increase the installations by 66% over the same period. In northwestern Xinjiang, a Chinese state-owned business connected the world’s largest solar facility to the grid, and is set to generate 6.09 billion kilowatt hours of electricity annually. This milestone signals even greater demand for solar panels, potentially driving China’s silver imports higher as its renewable energy push accelerates.
Looking beyond China, high global silver prices have traditionally discouraged Indian silver imports. However, the first four months of 2024 saw India’s silver imports surpass the total combined for 2023.
Silver vs Gold
Though above-ground silver inventories may limit industrial-fuelled price upside in the short term, macro drivers could support silver more than gold. Given their status as precious metals, silver and gold are easily comparable. However, there are two critical differences between the pair. Firstly, silver’s market size is much smaller than gold, and secondly, around 54% of silver’s annual demand is driven by industrial usage, while only around 7% of gold’s demand is supported this way. Despite these distinctions, silver is often called “second gold” as lower real yields and a weaker US dollar might boost both precious metals.
The gold-to-silver ratio, a metric which shows how many ounces of silver are needed to buy an ounce of gold, averaged 67 in the last 30 years. With gold sitting at record highs and the ratio now above 80, silver will continue to offer opportunities as long as it is cheaper than gold.
Silver as a Store of Value
The result of the US election, and potential volatility in the markets with the implementation of the incoming Trump administration’s policies, may benefit precious metals. With markets continuing to worry about the national debt and deficit, this could well drive demand for ‘safe-haven’ assets.
Precious metals’ reputation as safe-haven assets attracts investors during macroeconomic uncertainty, and with a global market that might be bracing for US tariffs and a destabilised global economic equilibrium, silver offers valuable portfolio diversification due to its low long-term correlation with other risky assets.
The dual nature of silver as both a precious and industrial metal makes it entirely unique. Since silver can appreciate during both periods of high economic growth and times of high volatility, a direct or indirect exposure to it could be a strategic holding in an investor’s portfolio. Particularly now with potential political-economic uncertainty and the growth story in China, silver could shine as a potential store of value.
Roberta Caselli is an officer with Global X ETFs
