Topic
One of the most basic fundamental factors pushing silver prices higher is the current supply and demand picture for silver. The silver supply and demand equation argues strongly for higher silver prices, with an ongoing supply shortfall coupled with increasing demand.
The latest report from the Silver Institute shows silver supply remaining relatively flat over the past two years, 2022-2023, and a slight decline in supply projected for 2024. On the flip side, total silver demand has increased by more than 20% since 2020, and is projected to hit near record highs in 2024. Philip Newman, the director at Metals Focus, the research firm that put together the Silver Institute’s report, characterized the level of demand for silver as “unprecedented”.
The projected figures for 2024 reveal a substantial supply shortage. Total supply is projected at 1,003.8 million ounces, while total demand is forecast at 1,219.1 million ounces. That’s no small differential, as it shows demand for silver outstripping supply by more than 20%.
The forecast is that the current imbalance between silver supply and demand is likely to persist for several years as demand continues increasing at a rapid pace.
Here are the figures, courtesy of the Silver Institute:
Here’s a more focused look at the last four years, since 2020:
Silver - Notes on Silver Supply
Although silver mining production recovered quickly in 2021 from disruptions caused by the pandemic in 2020, total production has remained relatively flat ever since, at roughly 800 million ounces per year. The rest of silver supply, about 200 million ounces annually, comes from recycling.
Mexico is the largest silver mining producer, accounting for more than one-fifth of total silver production, a little more than 200 million ounces. However, the output from Mexico’s silver mines actually suffered a 5% drop in 2023 from 2022 production. Other top silver producing countries also showed a decline in 2023, and total mine production worldwide was down 1%.
China is the second largest silver producer, although a rather distant second to Mexico, with total mine output 109 million ounces in 2023. Close behind China is Peru, with 107 million ounces. (Somewhat surprisingly, the United States is rather far down the list of silver producing countries. Its total 2023 silver production was just 32 million ounces.)
Top 10 Silver Producing Countries
Among major silver producing countries, Chile and Bolivia, the number 4 and 5 providers of silver, were the only noteworthy ones that substantially increased their silver mining output. Chile’s production increased by 24% - from 42 to 52 million ounces for the year, and Bolivia’s silver production was up 10%. (Papua New Guinea and Brazil had much larger increases, approximately 40%. However, neither one is a major source of silver, each producing only around 3 million ounces annually.)
Increasing the supply of silver is no easy task. Even if a silver mining company determines to ramp up production starting tomorrow, that’s a process that takes time. It’s not like a miner that’s pulling 100 ounces a day out of the ground today can just immediately start yanking out 200 ounces a day tomorrow. Opening a new mine is a long, expensive, and complex process. It involves exploration, surveys, getting permits, building infrastructure (mines are often located in remote areas where there are no existing roads, electricity, water, etc.), and a lot of development before actual mining production can begin.
Ramping up silver mining production is further hampered by the fact that there are a limited number of mines dedicated to producing silver. The vast majority of silver that is mined – roughly 70-80% - comes from mines that are primarily lead, copper, or gold mines – with silver production being mostly just a side line or byproduct of the mining of other metals.
An additional problem facing silver mines attempting to increase production is the fact that, in the wake of the 2020 pandemic, there has been a persistent shortage of workers in the silver mining industry.
As already noted, the total worldwide demand for silver is significantly outstripping supply, by approximately 200 million ounces annually. Industrial demand notched new record highs in each of the last three years, and is projected to set another record in 2024. 2024 will be marking four consecutive years of silver supply showing a substantial shortfall in failing to meet demand.
Industrial demand for silver has increased significantly over the past decade. 2024 projected total industrial demand for silver – pegged at 710 million ounces – is 50% greater than 2015’s industrial demand of 457 million ounces. Total demand increased by 10% in 2023, and is projected to jump by another 10% in 2024.
The push for renewable energy is the primary driver of rapidly increasing industrial demand for silver. The biggest silver demand boost, by far, has been the demand for silver used in the photovoltaic solar cells used in providing solar power. PV sector demand for silver surged massively in 2023 – up 64%, and is projected to increase by an additional 20% in 2024.
There’s every reason to believe the silver market will continue to see extremely high demand growth in this area. Estimates by BloombergNEF indicate that photovoltaic cell demand for silver could increase by more than 150% by 2030. Some analysts project that annual PV demand for silver could reach 500 million ounces. That equals roughly half of current total annual silver production.
There’s also growing use of silver in electric vehicles. Some industry analysts forecast that EV demand for silver could eventually outpace photovoltaic cell demand. Silver’s high conductivity makes for extremely efficient electrical connections in electric vehicles.
Researchers are continually finding new medical applications for silver, making that another market sector where silver usage is expected to significantly increase. 5G technology has also been a boon for the silver market. Predictions are that the current 5G-related silver usage of 8 million ounces annually will nearly triple by 2030.
Overall, silver rivals oil in terms of the number of products that it’s used in and the applications that it has. Here’s just a partial list (courtesy of Kitco.com) of the virtually endless uses of silver:
Investor demand for physical silver has also sharply increased – up more than 35% in 2021 alone. Demand for silver coins and bullion is likely to go higher as silver prices rise and more investors are attracted to the market.
(Note: Unlike gold, where almost all the gold ever mined is still with us, because of the way that much of it is used, a lot of previous silver mined remains unrecycled and largely unrecoverable.)
With such an obvious and massive discrepancy between the supply and demand for silver, investors are both puzzled and frustrated by the fact that silver prices – although up sharply in the first half of 2024 – aren’t substantially higher. The price of gold is more than double its previous 1980 all-time high of $1,000 per ounce. In contrast, silver is still nearly 40% below its all-time high of $50. But the basic supply and demand picture for silver would appear to argue that substantially higher silver prices are a virtual inevitability.
Clearly, something other than basic supply and demand forces are impacting the price of silver. What’s holding silver back? The most commonly offered explanation from precious metals market analysts is “price manipulation”. With steadily mounting evidence against them, Western central banks have long been accused of manipulating gold and silver prices, actively attempting to suppress them, primarily by selling short huge amounts of futures contracts.
The price manipulation theory works well in explaining why silver prices are lagging rather far behind, relative to the huge increase in gold prices. Thanks to the fact that silver is much less expensive per ounce than gold, it’s much easier for futures traders to short sell massive numbers of silver futures contracts than it would be to sell equivalent numbers of gold futures contracts.
Not only is market price manipulation the most commonly offered explanation for depressed silver prices – it’s about the only logical explanation that makes any sense. After all, it’s just a basic law of economics that when demand for a commodity is significantly greater than the supply, then that drives the price of the commodity higher. Given the huge discrepancy between silver supply and silver demand, the price of silver should, logically, be astronomically higher than it currently is.
The good news for investors is that those trying to suppress gold and silver prices now appear to be fighting a losing battle. Whenever there’s a sharp push to the downside these days, usually triggered by massive short selling in the precious metals futures markets, gold and silver bulls rush in by the boatload, with more than enough buying pressure to push prices back to the upside.
The bottom line is that economic reality of the demand for silver increasingly overwhelming the available silver supply means that any attempts to keep the price of silver down are likely doomed to failure. At some point, as they sustain greater and greater losses, short sellers will be squeezed and forced to give up the fight. When they are – watch out! When silver’s price is solely determined by the basic laws of supply and demand, the per ounce price of silver should explode exponentially higher. If the gold/silver ratio – which has been abnormally high for the past several years – were to return to historical norms of around 20/1, then – with gold trading at around $2,300 – the price of silver would jump to over $100 an ounce.
The monthly chart of silver below appears to indicate a significant, long-term price breakout that should propel silver back toward challenging its 2011 high of $49.81 and its all-time high of $50. Once the price of silver manages to notch a new all-time high, it will likely enjoy the same kind of “open field running” that has already sent the price of gold soaring to previously unimagined heights.
Silver Supply and Demand Picture – Conclusion
The silver supply and demand picture looks very good for silver bulls.
The laws of supply and demand are the most basic economic laws. When there is an abundance of supply above the market demand for a commodity, then price declines in order to attract more buyers, to absorb the oversupply. Conversely, when the demand for a commodity exceeds available supply, then prices rise as buyers compete to obtain the scarce resource.
For the past several years, the demand for silver has been much greater than the available supply. Annual demand currently exceeds supply by more than 200 million ounces. Such an excessive demand quotient represents a strong, fundamental economic force pushing the price of silver higher.
Upward price pressure on silver is projected to persist for several more years as silver demand continues expanding at an accelerated pace, while supply remains relatively stagnant.
There’s no such thing as a “sure thing” in the financial markets, but betting on higher silver prices doesn’t look like an excessively risky gamble at this point. Silver is undeniably one of the most attractive investment opportunities on the board. First Majestic Silver’s CEO, Keith Neumeyer, thinks the price of silver could rocket to more than $100 an ounce.
Triple digit silver price - that sounds like a good note to end on. 😊
(Note: Contrary to nasty rumors you may have heard, it is not true that I write most of my market analysis articles while I’m blind drunk. At least I don’t think it’s true – I can’t really remember.)
Sources:
https://www.silverinstitute.org/silver-supply-demand/
https://investinghaven.com/silver/silver-shortage-market-dynamics-2024/
https://www.silverinstitute.org/silver-demand-3/
https://www.silverinstitute.org/silver-demand-3/
https://carboncredits.com/silver-to-see-growing-deficit-in-2024-as-supply-struggles/
https://sprott.com/insights/silver-report-silver-demand-and-supply-trends-to-watch/
https://www.cruxinvestor.com/posts/copper-and-silver-demand-set-to-surge-amid-supply-deficits
https://www.silverinstitute.org/silver-in-medicine/
https://www.mining.com/silver-market-fundamentals-strong-as-it-enters-a-new-era-of-supply-deficits/
https://online.kitco.com/fundamentals/silver-investment
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