Silver Lining 2.0: The Sequel You've Been Waiting For

Last year, in June 2023, I wrote an article titled Silver Lining, outlining the bullish case for silver. At that time, silver was priced around $22.43 an ounce. Today, on May 20, 2024, we're looking at a significantly different landscape with silver trading at $32.16 an ounce, a remarkable 43% increase and silver’s highest close in 11 years. This substantial price jump validates the core arguments I presented a year ago regarding the growing demand for silver, particularly in the industrial sector and solar energy.

Demand Continues to Outpace Supply

The Silver Institute's 2024 World Silver Survey confirms what I anticipated: the global silver market continues to grapple with a supply deficit. The report estimates a deficit of 17% in 2024, which builds upon the deficits observed in the previous two years. This trend underscores the growing pressure on the existing silver supply to meet the ever-increasing demand.

silver supply demand

Industrial Demand Soars

As predicted, industrial demand remains a significant driver of silver consumption. The 2024 World Silver Survey projects a record high of 710 million ounces for industrial silver fabrication in 2024, a 9% increase from the previous year. This growth is primarily fueled by the photovoltaics (PV) and automotive industries.

The report highlights the ever-expanding role of silver in solar panels. Solar energy adoption continues at a rapid pace, and silver remains an irreplaceable component in PV technology due to its superior conductivity and reflective properties. The Silver Institute forecasts a 20% increase in silver demand from the solar industry in 2024, reaching an estimated 7,217 tons.

The automotive sector is another area where silver consumption is on the rise. Electric vehicles (EVs) are a major contributor to this growth. Each EV contains a significant amount of silver due to its electrical contacts, and with the rising adoption of EVs, the demand for silver in this sector is poised for further expansion.

global silver industrial demand

Short Covering Plays a Role

While the fundamental factors driving silver's price increase are undeniable, I believe the recent rise suggest that short covering has also played a role in the recent price surge. Short sellers who had bet on a decline in silver prices are now being forced to buy back their positions, which can put additional upward pressure on the price.

Looking Ahead: A Constrained Market

The silver market appears to be headed towards a future characterized by constrained supply and robust demand. The limited exploration and development of new silver mines, coupled with the time-intensive nature of bringing new mines online, suggests that significant increases in supply are unlikely in the near future.

On the other hand, the demand for silver is expected to continue its upward trajectory, fueled by the growth of solar energy, EVs, and other industrial applications. This dynamic suggests a potential scenario where silver prices could continue to rise in the coming years.

Silver: The Poor Man's Gold and a Hedge Against Inflationary Woes

In today's uncertain economic climate, with inflation gnawing at purchasing power and the value of fiat currencies fluctuating, many investors are seeking alternative havens for their wealth. While gold often takes center stage as a safe-haven asset, silver presents a compelling option, particularly for those seeking an affordable hedge against inflation. Often dubbed "poor man's gold," silver offers many of the same benefits as its pricier cousin, but at a fraction of the cost.

Fiat currencies, like the US dollar, are susceptible to devaluation due to factors like quantitative easing and rising national debt. As governments print more money, the purchasing power of each unit in circulation diminishes. Silver, on the other hand, has a long history of holding its value. Throughout civilizations, silver has served as a form of currency, and even today, it remains a tangible asset with intrinsic value. Unlike fiat currencies, silver's supply is limited, driven by mine production and recycling. This finite supply, coupled with its ever-increasing industrial demand, makes silver a potentially strong hedge against inflation.

When inflation erodes the value of your paper money, silver tends to appreciate in price. This means your silver holdings can maintain, or even increase, their purchasing power over time. This makes silver an attractive option for those looking to protect their wealth from the corrosive effects of inflation.

The affordability of silver compared to gold makes it a particularly attractive hedge for a wider range of investors. While a gold bar might be out of reach for some, a smaller investment in silver may still offer significant protection against inflation. This accessibility allows more people to participate in the precious metals market and safeguard their assets.

Silver's role as an industrial metal adds another layer of security. Its use in a wide range of applications, from solar panels to electronics, provides a constant and diverse demand stream. This industrial demand may act as a floor price for silver, further bolstering its value proposition as an inflation hedge.

In Conclusion

The events of the past year have served to reinforce the bullish case for silver. The growing demand from the industrial sector, particularly solar and EVs, coupled with ongoing supply constraints, has created a supportive environment for silver prices. While short covering may have contributed to the recent price surge, the fundamental drivers of the market remain firmly in place. As we move forward, it will be crucial to monitor how the silver market navigates this period of constrained supply and robust demand.

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Copyright © 2024 Bill Puplava

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