Silver: 2023 Outlook

Precious metals are among the popular investment choices. The four most commonly used precious metals are gold, silver, palladium, and platinum. While gold has traditionally been considered the primary investment metal, silver has recently been competing with it. In 2022, the physical volume of silver transactions on the Moscow Exchange nearly doubled, reaching 78.7 tonnes.

Silver demonstrates robust growth during times of high inflation. However, in the event of a recession and reduced industrial demand for the metal, its price could drop by more than 20%. In 2023, silver is projected to surge close to its highest level in a decade, reaching $28 per ounce. Some analysts believe that, in terms of price dynamics, silver may even outperform gold.

Current Market Situation

Silver, along with gold, is considered a reliable protective instrument and is more accessible to retail investors due to its lower cost. However, silver prices are often more volatile than gold, indicating higher risks but also providing greater potential for returns. Additionally, silver is not only an investment asset but also an industrial metal, used in renewable energy, radio-electronics, and electrical industries, such as in batteries.

According to The Silver Institute data, global silver demand reached 1.046 billion ounces in 2021, with 511 million ounces (49% of total demand) attributed to the industrial sector. Investment demand (bars and coins) accounted for 278 million ounces (27%), and the jewelry industry accounted for 182 million ounces (17%).

Silver production in 2021 amounted to 822.6 million ounces, while the total supply on the market, including secondary silver from scrap recycling, was 998 million ounces. This created a deficit of approximately 58 million ounces in the market, according to The Silver Institute data. The institute’s forecasts in November 2022 indicated that this deficit could increase to 193 million ounces in 2022.

Since September 2022, the price of silver has been on the rise. On January 5, 2023, the price on the American Comex exchange reached $26.07 per troy ounce. Since then, silver prices have increased by 47.14% compared to the beginning of September of the previous year.

However, prior to that, silver prices had been declining for several months: according to Comex data, from mid-April to mid-October 2022, they fell by almost a third, from $26 to $18.2 per ounce.

Traditionally, silver price dynamics follow those of gold, which also showed high volatility since late 2022.

The decline in precious metals prices occurred against the backdrop of a strengthening dollar: in 2022, its exchange rate reached the highest level against the euro since 2002. However, after the dollar’s depreciation began in the fall of 2022, precious metals prices started to rise again.

Market Forecast for the Second Half of 2023

The current rise in silver prices is attributed to several factors. Firstly, the weakening of the dollar has made silver more appealing to investors. Secondly, the increase in gold prices has also contributed to the growing interest in silver as an alternative asset. Thirdly, there has been a rise in industrial demand for silver, particularly in India. This has led to a decrease in silver inventories on the Comex exchange and the London Bullion Market Association (LBMA). In India, the demand for silver has surged due to higher consumption in jewelry and tableware production.

Furthermore, in 2022, the demand for investment-grade silver coins and bars grew by 18%, primarily in India. As a result, global silver demand increased by 16%, while supply only grew by 2%.

The world silver market has experienced a deficit since 2021, which continues to grow in 2023. The increasing industrial demand for silver in the production of electric vehicles, solar panels, and electronics (approximately 5%) has contributed to this trend. Silver demand remains on the rise, but the production of silver only saw a 1% increase in 2022, contributing to the ongoing deficit in the market.

Technically, amid significant volatility, silver may rise to the upper boundary of the ascending channel (visible on the chart) up to $28 with intermittent downward corrections. It all depends on the Federal Reserve’s statement after the meeting on July 26, where the penultimate minor rate hike is expected. If the tone of the comments becomes more dovish, further weakening of the dollar and an increase in precious metals’ prices can be anticipated.

Wrap Up

Leading hedge fund analysts anticipate that the average silver price in 2023 will be around $24 per ounce, with high price volatility. Therefore, silver can be seen as an attractive asset for long-term investment due to the growing industrial demand, indicating a high potential for its value to increase in the long run.