Every year there are a few people that talk excitedly about silver and every year they are disappointed. I look forward to being added to this list. Silver reminds me of every sports team I have ever believed in; maximum disappointment follows maximum excitement. It’s easy to get excited about silver as the asset class is small, meaning minor changes in interest or funds flow can result in outsized price changes. The time it takes to bring on a new mine also means that the market cannot respond to higher prices as other industries might, allowing longer periods of gains. Silver is finally starting to look strong technically, and combined with the recent changes over the past year, we may reach a turning point in the next few years. I’m ready to be hurt again.
Total silver demand in 2022 reached a record high, as recorded in the World Silver Survey. The industrial segment in particular was supported by electrification and the specific use of silver in solar panels. Solar panel demand is expected to only increase with the current push to reduce global emissions. Governments are setting targets, which makes demand more predictable; the European Commission amongst others has targets to quadruple installed solar capacity by 2030. Recent hiccups with wind power development may also mean that renewable targets are met by a larger percentage of solar power, accelerating already lofty targets.
In 2022, silver bar and coin demand spiked by 22%. This represents a fifth consecutive year of growth as individual investors continue to make precious metals investments a part of their asset mix. Global instability, and inflation, helped drive these purchases as individuals looked to protect their hard-earned dollars from fiat currency devaluation. Jewelry recycling also declined, another sign that individuals were happy to hold onto these assets.
Increased demand is not being met by supply. Production from primary silver mines was flat year over year, rising by 0.1%. It shouldn’t surprise anyone that there are not a lot of tailwinds for mining supply right now between inflation and ESG concerns.
Deficits for silver in 2021 and 2022 more than offset all surpluses of the last decade. This is impressive when you think about how cleantech spending is just commencing and the nature of supply in this industry is that you know about it decades in advance. New mines are not arriving fast enough.
This previous year the amount of silver held at London vaults declined to the lowest levels since 2016. The scary thing about this is about half of the volumes held in vaults are owned by silver ETFs, which aren’t actively withdrawing them. With significant volumes spoken for by ETFs, it means the percentage decline in available volume is much higher.
These changes are substantial to all occur in a short period and if a big move was to happen to silver it’s probably now or never. I’m only a technical investor when it works but it’s interesting to also see key technical trends currently waiting right at that decision point. We will know soon.