The precious metals market is experiencing a potential shift in investor preference, as spot prices of silver have surged 19.2% over the past month, as compared with a 0.2% rise in gold.
In the short term, investing in silver resulted in higher returns for investors than in gold. But in the long term, gold prices outperformed those of silver.
What's Driving The Demand?
Demand for silver grew at a 17.5% compound annual growth rate between 2019 and 2023, according to data by Metal Focus, a research company based in London. It is expected to rise 2% year-on-year, as compared with 2023.
Silver industrial fabrication is expected to rise 4% in 2024 to 690 million ounces, more than the all-time high achieved in 2023, said the Silver Institute. In line with recent trends, the solar photovoltaics and automotive industries will remain the key drivers of growth, it said.
After challenges in 2023, the consumer electronics market is expected to recover, which will provide an additional boost to the silver industrial market. Further, jewellery demand is also expected to rise 6%, with India being a key contributor to growth.
Higher Use Case For Silver
Demand for silver is no longer just in jewellery; it has also gained momentum from industrial uses. The metal's excellent conductivity for electricity and heat also makes it a good choice in different markets.
Electronics: Widely used in electrical circuits, contacts, and switches in smartphones, laptops, televisions, and other electronic devices.
Electric Vehicles: Essential for electrical connections and components in electric cars due to their conductivity.
Medical Applications: Due to their ability to fight infection, people use silver bandages to treat burns and chronic wounds. Catheters and other medical instruments often incorporate silver to prevent bacterial growth.
Why Are Silver Prices Rising?
Rising prices are caused by market demand and supply dynamics. While the demand for silver and its use cases are rising, the industry is facing supply constraints.
The silver market is currently facing its fourth consecutive year of a structural market deficit. In 2021 and 2022, silver market deficits were 81 million and 253 million ounces, respectively. Despite this, 2023 had the second-highest annual silver demand ever at 1.3 billion ounces, fuelling ongoing deficits in the market.
The Silver Institute expects the global silver deficit to rise further by 17%, reaching 215.3 million ounces in 2024. The rise is driven by a 2% growth in demand on the back of robust industrial consumption.
How Can You Invest In Silver?
Silver Bars And Coins: Reputed jewellers or government-approved bullion dealers offer silver bars and coins for purchase. Opting for hallmark varieties for guaranteed purity is also an option. As of June 6, silver prices in Mumbai and Delhi were at Rs 88,710 per kilogram.
Silver Jewellery: While primarily for adornment, silver jewellery can also hold some investment value. However, manufacturing charges and design elements have a significant impact on the resale price of silver jewellery when compared to pure silver.
Silver Exchange-Traded Funds: These function like mutual funds but track the price of silver. One can invest in ETF units that reflect the underlying silver price. This avoids storage hassles and offers easy buying/selling on exchanges. Some of these ETFs are the Nippon India Silver ETF and the Kotak Silver ETF Fund of Fund.
Silver Futures: Traded on commodity exchanges like MCX and NCDEX, silver futures are contracts to buy or sell silver at a predetermined price on a future date. This carries a higher level of risk because it involves leverage and necessitates close market monitoring.
Digital Silver (E-Silver): A recent innovation by the National Spot Exchange allows investing in smaller denominations of silver held in demat form. This provides a convenient and digital way to hold silver without having to be physically present.
Global Scenario
Silver prices have remained above $30 per ounce in the last week of May, supported by strong demand from solar photovoltaic production, which is on track to surpass last year’s record levels. The higher demand is driving higher silver import volume into China, reflected by the elevated premium in China’s silver market.
In April, the spread between Shanghai and London’s silver spot prices reached an all-time high of $3.69 per ounce. This growing arbitrage is expected to encourage more metal flows into China, potentially tightening supply in other regions.
The ongoing trend towards robust solar PV production is set to maintain high silver import demand in China. As a result, the increasing arbitrage window could further impact global silver supply dynamics, with significant implications for market participants.
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