Silver has no fundamental downside as the market sees fundamental deficits for the foreseeable future
2024 has been an interesting year for silver. After a slow start, the precious metal has become the best-performing asset in the sector, with prices up nearly 34% so far this year.
While prices may remain volatile in the near term, there is strong bullish sentiment in the marketplace, according to panelists at the 2024 LBMA Precious Metals Conference.
The panelists noted that the silver market is expected to experience a significant supply surplus this year, and with demand consistently outstripping supply, this trend could continue for the foreseeable future.
According to the Silver Institute’s annual silver survey, the market is expected to face a deficit of 215.3 million ounces, the second-largest shortfall in more than two decades. Total global silver demand is projected to rise to 1.219 billion ounces, a 2% increase from last year.
Mitchell Krebs, CEO of Coeur Mining, said the silver market has undergone a complete transformation, as silver has become a critical industrial metal. He noted that the global economy’s electrification will require significantly more silver.
“I have never seen a better outlook for silver. It’s an extremely exciting time to be in the silver market,” said Krebs.
Matt Watson, Founder and President of Precious Metals Commodity Management, emphasized that investors should not underestimate silver's industrial uses as technology and the global economy continue to evolve.
“The outlook for growth in electronics is phenomenal. It’s the do-it-all metal on the Periodic Table,” he said. “I don’t see any fundamental downside to silver.”
Krebs pointed out that while demand remains strong, the fundamental question is: where will the supply come from? He added that the mining sector is unable to find enough silver to replace what is already being produced.
He also noted that even if a major discovery were made tomorrow, it would take 20 years for that silver to enter the market, due to the time required for exploration, permits, and mine construction.
“We are not able to keep up with demand, and I don’t know where the supply on the production side will come from,” he said. “With these supply issues and the current demand profile, I see these deficits continuing.”
The secondary market is also unlikely to fill the supply gap. Darshana Thacker, Global Business Manager at Ames Goldsmith Corporation, explained that while a lot of silver is used in electronic devices, very little of that metal is recycled. She pointed out that recycling has become more complicated as silver is often mixed with other components.
“Recycling silver will play an important role in supplying the market,” she said. “However, investment in new technology is needed to effectively recover the metal. If we don’t improve recycling, I don’t know where the silver supply will come from.”
Watson added that even if the sector doubled the supply of recycled metal, it still wouldn’t be enough to meet the growing demand.
About half of silver demand comes from industrial applications, while the other half comes from the investment and jewelry markets. The panelists said they expect investment demand to increase as industrial demand continues to grow.
Danielle Oliari, Chief Operating Officer at CNT Depository, noted that her company has seen a robust secondary market. She added that in the current environment, there are more sellers than buyers; however, bullion mint products have been weak this year, so the secondary supply has been able to meet demand.
Oliari also mentioned that it wouldn’t take much to drive investment demand higher, which would only add to the market’s overall deficit.
“The consumers who want coins and bars are competing for the same silver that the industrial sector is fighting for. This will support prices,” she said.
As for where prices are headed, the panel did not provide any specific forecasts beyond their generally bullish outlook. However, according to a survey at the end of the conference, delegates expect silver prices to rise to $45 an ounce, a more than 40% increase from current levels.
Source: https://www.kitco.com/