Silver likely to rule at higher levels this year on supply deficit

After having surged to over 11-year high, silver prices will likely rule at elevated levels as the precious white metal will face a deficit for the fourth year in a row amidst tight supplies.

On Wednesday, silver prices in London ruled at $31.75 per troy ounce. In India, silver for delivery in July on MCX ruled at  ₹94.252 a kg — a record. Spot prices for silver were quoted at ₹93,094 a kg in Mumbai.

“Silver prices surged above $30/oz for the first time since February 2013 at the end of last week on robust financial and industrial demand, and there are suggestions that physical sales have also picked up,” said ING Think, the economic and financial analysis wing of Dutch multinational financial services firm ING.

Gains more than gold

Silver has gained more than gold over the past week, month and year. The white metal has gained over 35 per cent year-on-year compared to gold’s 22 per cent. Month-on-month the gain has been over 15 per cent against nearly four per cent in gold and since last week, it has gained 6.5 per cent versus less than one per cent rise in gold. 

ING Think silver stockpiles tracked by the London Bullion Market Association fell to the second-lowest level on record in April, and the volumes at exchanges in New York and Shanghai are hovering near seasonal lows.

Speculators have increased their positioning in COMEX silver over the past week. CFTC data show speculators increased their net long in silver by 6,707 lots to 41,621 lots as of May 14.

The World Bank, in its Commodity Outlook 2024, said silver prices are forecast to increase by 7 per cent in 2024 (year-on-year) and a further 4 per cent in 2025.

Expanding EVs

Silver prices gained in April, owing to recovering industrial activity. “In 2024, demand for silver is expected to increase modestly, driven by its dual appeal as both a financial asset and an industrial commodity.” it said. 

Industrial demand, which accounts for almost half of global silver consumption, continues to be supported by expanding vehicle electrification and renewable energy infrastructure, the outlook said. 

Demand will likely be further boosted by a recovery in jewellery and silverware demand. Investor interest in silver is set to be bolstered by advanced-economy interest rate cuts later this year, the World Bank said.  

New York-based Silver Institute in its Global Silver Survey 2024 said industrial demand is forecast to rise by 9 per cent this year to a new record high. “Modest growth in the global economy will fuel gains across all segments of demand,” it said. 

Output to fall

The deficit will further grow by 17 per cent in 2024 due to stagnant supply and hopes of another record industrial demand. “Deficits should also continue, depleting currently ample inventories,” the survey said.

The likely easing of US monetary policy is expected to drive a notable rally in precious metal prices, although short-term downside risks persist, the institute’s survey said. 

“Silver will benefit from this, but major price gains and a narrowing of the gold:silver ratio may have to wait until tightness in physical silver markets develop,” it said. 

Stating the ongoing deficit was due to subdued supply besides robust industrial offtake, the survey said the silver market saw its deficit at 184.3 million ounces (moz) in 2023. 

According to the survey, global silver mine production is anticipated to fall by a marginal 0.8 per cent to 823.5 moz in 2024. 

Investments may drop

Output from Mexico, US, Chile, Russia and Morocco will rise, while production in Peru is expected to drop significantly by  17.9 moz. 

Recycling is projected to be flat, though at a 12-year high. Only industrial scrap is expected to grow but the gains will almost entirely be offset by losses in all other segments, such as jewellery and silverware scrap.

This will be owing to limited economic distress and a further drop is also expected for photographic scrap, the survey said.

Jewellery fabrication is expected to recover by a modest 4 per cent. India is expected to be the biggest contributor, in part as restocking by retailers resumes, it said.

Net physical investment may fall again in 2024 to its lowest since 2020.  Exchange-traded product holdings are likely to drift lower in early 2024, falling by another 2 per cent through to mid-March.