Commodities

Despite dipping 15%, silver may continue to get support from green tech

Subramani Ra Mancombu July 21 | Updated on July 21, 2021

Fall is only short-term, long-term prospects good, say analysts

 

Silver will likely continue to draw support from green technologies world-wide, though they have dropped over 15 per cent from the eight-year high witnessed in February this year.

Silver, which has dropped 4.65 per cent since the beginning of this year, is currently quoted at $25.12 an ounce. “Unprecedented investor interest” in early February saw silver topping $30 a tonne before finding its levels. The white precious metal hit a record $48 an ounce in 2011.

In India, spot prices topped ₹73,000 a kg then, while futures on MCX zoomed to ₹73,666 a kg. On Tuesday, spot prices ruled at ₹66,980, while September contracts ended on MCX at ₹66,597 a kg.

Under pressure

Silver has been under pressure since February on a surge in the Covid pandemic and concerns over recovery of the economy that can impact the precious metal’s demand.

Analysts are unanimous in their view that silver’s current fall is only for a short tenure and its long term prospects are good, particularly since the metal will find its use in various applications, including solar panels.

Silver is used in mobile phones, tablets, laptops, medical devices, industrial devices and automotive applications, besides solar panels. It has other uses, too, such as in the power industry.

According to the Silver Institute, the industry’s voice, silver supply this year is likely to increase eight per cent with mine production also rising by a similar margin to 848.5 million ounces (moz) from 784.4 moz last year.

Favoured over gold

On the other hand, demand for the precious metal is set to rise by 15 per cent this year to 1,033 moz with industrial offtake alone estimated eight per cent higher at 524 moz.

Among industrial uses, photovoltaics use is expected to be 10 per cent of the total consumption at 105 moz, up four per cent from last year.

The market balance has been projected 71 per cent lower at 23.3 moz by the institute.

Physical investment demand for silver this year is expected to be 26 per cent higher than last year at 252.8 moz. Bank of America, in its note for commodity investors, said that it favoured silver over gold as an investment strategy due to this reason.

Inflation could be an additional support for investment in silver as an asset as it continues to be a safe-have investment, said Mohit Oberoi, writing in Market Realist.

Safe-haven investment

Silver remains a safe-haven investment, too, with a record 36,706 tonnes of silver being physically held in London vaults as of the end of June, he said, quoting the London Bullion Market Association.

Heraeus Precious Metals, in its appraisal of the sector, said a surge in raw material prices of photovoltaic (PV) modules has resulted in solar panel turning costlier and the high cost could weigh on demand for silver.

The long-term trend for silver demand in PV modules is robust as deployment of solar energy is growing. A factor that could now come into play with regard to silver demand for PV modules is the drop in the percentage of the use in the precious metal.

In his outlook for the precious metal last year, Goldman Sachs analyst Mikhail Sprogis said that new solar panels contained 25 per cent less silver than the older ones and this could limit the growth of the white metal. Its use will not be eliminated, though.

Price forecasts

The Silver Institute has forecast silver prices to average at $27.30 an ounce against $20.55 last year. US multinational investment bank JP Morgan has forecast silver to average at $26.5, while another Bank of America sees the metal averaging at $29.28 an ounce.

Earlier this year, a discussion among investors on “The biggest short squeeze in the world” on Reddit’s Wall Street Bets group resulted in Blackrock iShares Silver Trust recording $944 million inflow on January 29. The #silversqueeze followed a run on stocks such as Gamestop, Blackberry and AMC Entertainment on Robinhood app.

Silver surged as investors alleged that “big banks” were artificially suppressing the precious metal’s price.

 

 

   

 

Published on July 21, 2021

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