In 2023, silver has emerged as a standout performer in the precious metals market, even outshining gold. Spot silver prices have climbed to their highest level in nearly 12 years, showing an impressive year-to-date gain of approximately 34%. This outpaces gold, which has also seen significant gains this year.
According to FactSet data, the largest silver ETF, iShares Silver Trust (SLV, Financial), has attracted around $856 million in inflows this year. Silver mining stocks have also risen, with Wheaton Precious Metals seeing around a 30% increase year-to-date.
Several indicators suggest robust demand for silver, both as a store of value and for industrial use. The Silver Institute reports that silver demand has outstripped supply for the past three years and expects this trend to continue in 2023. Citigroup research also indicates a persistent shortage in the silver market over the last five years, driven by strong demand from the photovoltaic industry.
On the supply side, mining output has been weak. Over 70% of global silver production comes as a byproduct of mining other metals like lead, zinc, copper, and gold. Declining zinc prices have led to significant mine closures in recent years. Recycling only accounts for less than 20% of total silver supply.
Meanwhile, industrial demand for silver is increasing, largely due to the growing capacity of solar panel production, where silver is a crucial component. From 2019 to 2023, silver demand in the photovoltaic sector surged by 158%, with a further 20% increase expected this year.
Michael DiRienzo, CEO of the Silver Institute, highlights the global electrification movement as a major driver for silver demand, noting that most industrial uses for silver have no viable substitutes. Max Layton, Head of Commodities Research at Citigroup, also points out that signs of economic weakness in the U.S. have driven investors towards precious metals like silver as a store of value, with expectations of lower interest rates also boosting demand.
What’s next for silver prices? Observing China’s demand could provide some clues. China has shown strong demand for silver as a store of value and for industrial purposes, especially in photovoltaics and electric vehicles. Citigroup notes that earlier this year, China’s silver bar imports surged from nearly zero to over $100 million.
Another potential catalyst is the Federal Reserve’s interest rate policy. If the Fed continues to cut rates, it could stimulate further demand for silver and gold. Lower rates might also boost industrial activity in the U.S., particularly debt-reliant solar projects, thereby increasing silver demand.
Currently, silver remains relatively undervalued compared to gold. One ounce of gold can buy approximately 83 ounces of silver, compared to the 20-year average ratio of 67. Despite its gains this year, silver’s price is still far below its peaks in 1980 and 2011.
