Over the past two years, silver prices in the overseas market have generally traded in the range of $29-$16.50 an ounce. Although other precious metals like gold and palladium hit new all-time highs, silver traded at nearly half of its all-time highs. A decline in investment demand dominated the metal’s trend.
Meanwhile, in the domestic futures market, prices are supported by a weak currency and a recovery in demand for silverware and ornaments. When crafting utensils and jewelry, the metal is often seen as a substitute for gold, which is currently hovering near multi-year highs.
Over the past two years, several micro and macro factors have supported global commodity prices. The prices of other precious metals like gold and platinum reached record highs during this period. But a rapid shift of traditional silver investors to other avenues of investing halted the commodity’s gains.
Historically, silver has tracked the performance of gold. It was therefore a favorite safe-haven asset for investors. However, for the past few years, although the metal has followed the movements of the yellow metal, it lacks dynamism. This has reduced the appetite for silver, especially from professional investors, making them the net sellers of the commodity.
Nevertheless, the industrial demand for silver followed an upward trajectory. It posted a 9% increase last year and was its highest since 2010. This was due to limited pressure from substitution and savings, restocking by end users and its demand in green economy applications. Recent changes in the energy and automotive sectors have also contributed significantly.
Money is an integral part of many green technologies. As the world moves towards a green economy, investments in decarbonization and electrification continue to grow. It is widely used in renewable energy solutions, especially in photovoltaic industries. Silver fillers are also used in electric vehicles. These new and emerging applications provide structural support for the metal.
Last year, silver mining and recycling activities improved significantly after the pandemic-related supply disruption in 2020. Global production increased by 5.3%, posting its largest annual increase production since 2013. Recycling also increased for the second consecutive year to an eight-year high. However, despite an improvement in production, global silver markets were in deficit.
Demand was also reported to be higher, especially in the physical market. Coin and bullion purchases contributed most of the volume, followed by industrial demand. The resumption of industrial operations and the re-opening of businesses after the pandemic-related lockdown has largely boosted sentiment.
Contrasting forces continue to dominate the market outlook. Factors such as central bank policies, geopolitical tensions and currency movements should have less of an impact on investment demand. Meanwhile, new and emerging industry demands could perhaps provide strong price support.
On the price front, silver prices overseas remain at levels of $28-$14 an ounce, and breaking either side would suggest further directional moves. However, domestically, a low INR, high tariffs and stable physical demand could lead to major price drops.