Significant Silver Price Rise Possible on Supply Deficit


The silver supply deficit has reached an all-time high, which might fuel price rise.

According to the latest Silver Institute analysis, with silver prices hovering above $25 an ounce, investors may be waking up to a significant mismatch in precious metals supply and demand fundamentals as demand continues to surpass supply.

The Institute released its 2023 Annual World Silver Survey on Wednesday, and according to the research, silver experienced its largest market shortfall on record, totaling 237.7 million ounces. The research group, Metals Focus, stated that the deficits in 2021 and 2022 had more than outweighed the combined surpluses of the prior 11 years.

According to Philip Newman in an interview with Kitco News, the market imbalance is caused by record demand and slow supply growth.

According to the research, global demand reached a new high of 1.242 million ounces, up 18% from the previous high in 2021. Simultaneously, worldwide silver supply stood at 1.004 billion ounces, nearly unchanged from the previous year. Supply is predicted to increase by 2% to 1.024 billion ounces in 2023.

“Silver demand in 2022 was unprecedented, and we don’t say that to be sensational; it’s the only way to describe the market,” Neman added. “The silver market has entered a new deficit paradigm that began in 2021.”

Looking ahead, The Silver Institute and Metals Focus predict that silver will show another “sizable deficit,” even if it will be lower than last year’s record highs. Analysts predict that strong demand will result in a 142.1 million ounce market shortfall in 2023.

“Which would be the second-largest deficit in more than 20 years,” added Newman. “Even if some markets are not as strong as they were last year, demand is expected to be very robust.”

According to the research, industrial demand continues to dominate the market, even as investment interest drives prices up. According to the research, industrial demand reached a new high of 556.5 million ounces last year, up 5% from 2021. According to Metals Focus, industrial demand will increase 4% to 576.4 million ounces this year.

Newman observed that industrial demand for silver is projected to continue strong even as global economic activity faces a growing risk of recession. He stated that the transition to green energy and the evolution of electric vehicles will continue to drive silver demand.

“The automatic sector isn’t a new area of demand for silver, but there is a lot of exciting opportunity for demand to grow in this sector,” he explained. “While developing 5G networks are not silver intensive, they do provide opportunities for emerging technology to grow as it gains access to more bandwidth.” All of this new technology will be powered in part by silver.”

The jewellery business is another key source of silver demand. According to the report, worldwide jewellery demand reached a new high of 234.1 million ounces last year, up 29% from 2021. Despite the possibility of a recession, jewellery purchases are predicted to total 199.50 ounces this year.

VanEck expects gold to be a valuable safe-haven asset until 2023.
Finally, Metals Focus reported that 2022 will be a record year for the physical bullion market. Demand was led by a region of India, where demand increased 188% last year. Newman observed that Indian buyers had such a voracious demand for silver that by the end of the year, 80% of the precious metal had been imported by air.

According to Newman, 55 million ounces of silver rushed into India in September, setting a market high. Despite the fact that Indian demand has fallen dramatically since the autumn, with only roughly 500,000 ounces imported in February, Newman said the market picture remained positive.

Physical investment demand for silver is estimated to be 309 million ounces in 2023, a 7% decrease from last year.

“Even if demand for bars and coins is down from last year, it is still well above pre-pandemic levels,” he said.

When it comes to prices, Newman says that while industrial demand is expected to offer a floor, they will still be driven by investment demand, which may fade in the second half of the year.

“According to Metals Focus, the silver price will move broadly sideways over the next few months before succumbing to liquidations in the second half of the year.” By Q4, we anticipate that the price will be in the low $18s. This will result in a full-year average of $21.30, a 2% decrease year on year, according to the experts’ analysis.

The largely benign view comes as silver prices remain well above $25 per ounce. May futures are currently trading at $25.34 per ounce, up 0.30% on the day.