● The
global economy’s focus on transition to clean energy is creating an additional
demand for silver, which is used in solar panels and EVs, that will only grow
in the future.

● According
to Silver Institute research, 2023 will be the year of the biggest-in-decades
deficit in the physical silver market.

● The
easing of monetary policy by world central banks and the inflation slowdown
support the fundamental growth of silver prices.

Gold and silver often go hand in hand when discussing precious metals. Both
metals have been objects of desire for thousands of years, and each has been
found on every continent of the world.

Just
like gold, silver is used in jewellery. However, its demand in industry, where
it is used six times more often than gold, creates a strong interest among
investors.

Nevertheless,
there is relatively little information available on silver, which makes
potential investors more vulnerable to losses.

OctaFX
experts expect that silver reserves will continue to decline in 2023, leading
to a potential increase in its value. Silver prices could reach a nine-year
high of $30, highlighting its strong potential for well-informed investors.

Decarbonization and electrification will
lead to a major increase in demand

Much of
the silver value is determined by its industrial demand and supply
fundamentals. It is estimated that approximately 60% of silver is used for
industrial purposes such as electronics manufacturing, solar cell production,
automotive industry, and soldering, while only 40% is available for investment
in the form of jewellery, silver coins, and bars.

Industrial
demand is growing due to the electrification of automobiles, 5G deployment, and
governments’ commitment to using renewable energy sources, such as solar
panels.

The
demand for renewable energy is a key driver of growth. Silver is an essential
component of solar power generation panels, with approximately 100 million
ounces consumed annually. According to the IEA 2022 renewables report,
electricity from wind and solar photovoltaics (PV) will more than double in the
next five years, providing almost 20% of global power generation in 2027.

This is
expected to lead to a significant increase in the amount of silver consumed in
the coming years. According to projections from BMO Capital Markets, the annual
consumption of silver in the solar industry could grow by 85%—to 185 million
ounces—within a decade.

Silver’s
excellent electrical conductivity makes it an indispensable component in the
automotive industry, especially in electric vehicles (EV), which contain twice
as much silver as petrol cars. Furthermore, charging stations for EVs will
require a substantial amount of silver as well.

By-product silver production is expected to
be the key trend of the next decade

Most of
the silver supply is generated as a by-product of base metals mining, with
zinc, lead, and copper mining accounting for 59% of silver production.
Specialised silver mines are costly, as they are very large projects, and their
number is therefore declining. The supply of silver as a by-product of non-precious
metals production is expected to rise in the coming years.

Mexico,
China, and Peru are still the largest silver producers in the world, with Peru
leading in silver reserves. However, Peru’s reserves are declining, while
China’s are increasing. The growth in production has not kept up with the
significantly increasing demand. Extrapolating the data on reserves and
production suggests that the reserves may be completely depleted in 20 years or
sooner, given the average life of a silver mine being 10 years.

Market momentum kept silver prices low in
2022 and drove them up in 2023

Looking
at the silver price dynamics over the last 5 years, it becomes clear that a new
bullish trend in this market began around mid-2020. Since then, the silver
price has lost some of its growth, dropping to $22. The main constraint was the
strong dollar, which in turn reacted to the tightening of the Fed’s monetary
policy.

The
correlation is quite strong—together with the end of the inflationary shock and
the change of the dovish tone, the silver price found support at $18 and has
been consistently bullish since August 2022.

Inflation
expectations are positively correlated with precious metals and are a leading
indicator, especially when combined with the EURUSD effect. In the current
environment of declining inflation and lower interest rates coupled with
additional stimulus amid the banking crisis, investors believe in the beginning
of a new business cycle. This will reduce the strength of the dollar and
provide significant support to silver, possibly boosting its price to $30 in
2023.

This article was written by ForexLive at www.forexlive.com.