Many factors impact silver supply versus demand. Everything from mining and production to volatility in the stock market to the price of other precious metals such as gold or palladium can affect silver supply and demand.
If you already own silver or are looking to expand your assets to include silver, you may have noticed that silver prices change over time. As with any commodity, price fluctuations for silver are both inevitable and normal. That said, it may still be helpful to know which factors often have the greatest impact on fluctuations in the silver market.
Here are the trends you can watch to better understand these fluctuations.
An Overview of Silver Demand vs. Supply
The available supply of a product often exceeds the market demand for it (or vice versa). When available supply exceeds market demand, we expect prices to fall (unless there’s a distortion in the market, such as the exercise of monopoly power). This imbalance between supply and demand is what creates price increases and decreases.
This is true for silver as well, with a few important caveats. Silver is considered a liquid asset with intrinsic value—unlike equity, paper currency, or bonds. This means silver is a tangible item that is both bought and sold. But it can only be bought if someone is willing to sell it, which makes certain aspects of silver’s supply and demand equivalent.
The price the product settles at is what’s known as the “market clearing price,” or the price at which there’s a willing buyer and seller of a product, thus balancing, or “clearing,” the market. Because of this, we have to factor in the larger marketplace and different ways in which silver is used to understand the interplay of supply and demand.
For example, the price of silver can be heavily impacted by industrial demand, particularly with the rise of green energy and EV production. According to Maria Smirnova, managing director of Sprott Inc., “While silver supply faces some constricting trends, the rebound in demand could prove sustainable, thanks to silver’s critical role in growing green energy initiatives.”
What Impacts Demand for Silver?
People have been using silver as currency and in jewelry making for centuries, with sterling silver (a silver alloy made of 92.5% silver and 7.5% copper) becoming a standard in the 14th century. As technological development booms, particularly within the market for photovoltaic cells in renewable energy, silver demand can increase in a number of different avenues.
Industrial Demand for Silver
Silver is widely known for its use in technological applications. Your cell phone, the battery in your car, solar panels, the computer keyboard that made typing these words possible—all of them require silver. According to Maria Smirnova in the Sprott Silver Report, photovoltaic cells, an essential technology in solar panels, grew by 13% as a category in 2021.
This growth in the tech sector, particular with renewable energy, is partly responsible for the jump in silver demand in 2021, according to Smirnova. This has only been hastened by the Russia-Ukraine conflict, as Europe and other Western countries work to diminish their dependence on Russian oil.
Despite a brief lull in 2020, when production slowed because of the COVID-19 pandemic, the industrial demand for silver is rising again, now at an even faster rate.
Silver Jewelry and Silverware
Because of its luster and resilience, silver has been used in jewelry and silverware for centuries. When demand for luxury goods increases, so does demand for silver. According to Statista, silver jewelry and silverware account for over 21% of total silver demand and are thus integral to understanding overall silver market trends.
As we wrote earlier this year, demand for jewelry remains strong, as seen by the 21% increase in silver jewelry production in 2021. This is true for silverware as well.
Silver as an Asset
Silver, like other precious metals, is often seen as a safe haven for wealth during times of economic uncertainty and inflation. In 2021 alone, global sales of silver coins and bullion grew by 36%, an indication that an increasingly large number people are looking for a tangible asset during times of market volatility.
That said, silver is historically more volatile than gold. As Maria Smirnova writes:
Silver’s response to current macroeconomic challenges has been to follow its traditional pattern of reacting with more volatility than gold. Silver is down modestly YTD; priced at $23.35 per ounce on December 31, 2021, it was $21.72 as of May 23, 2022, a decline of 7.02%. Gold, by contrast, gained 1.38% YTD through May 23. Both are strong showings, given [that] the S&P 500 declined 16.65% in the same period.
Though silver as an asset can be more volatile than gold, it is available at a much lower price point and outperformed the market last year. People interested in diversifying their portfolio against market volatility still turn to silver coins or bullion or silver in their IRAs as a means of guarding against downturns.
What Impacts Silver Supply?
On the supply side for silver, there are also a number of different factors to consider, such as mining and production, recycling volume, and the price of silver and mining byproducts.
Mining and Production
Every year, new silver enters the market through mining and production. Though the COVID-19 pandemic impacted mining operations, including temporary operational shutdowns, production is picking back up again.
According to The Silver Institute, silver mining increased by 5.3% in 2021, while production from raw mining increased by 10.2%. The overall total cash cost (TCC) of silver mining has also diminished over the last year, by 18%. This means that not only has production increased since it halted in 2020, but that it has also gotten cheaper to mine silver, which may lead to future increases of new silver entering the market.
Silver in jewelry, silverware, and other forms is often recycled by being melted down for use in other purposes. When silver recycling activity is high, it can drive the silver supply up even further, augmenting the availability of new silver entering the market from mining and production.
According to the Sprott Report, recycling volumes grew by 7% in 2021.
Price of Silver and Mining Byproducts
Silver is rarely mined on its own. Most silver is produced as a byproduct of mining for gold, copper, lead, and other metals. When demand and prices are high for these other metals, operators may produce more silver as a byproduct than the market demands. This imbalance in silver supply and demand will typically lead to lower prices.
Similarly, when prices for byproducts produced while mining for silver are high, suppliers may increase supply if it would mean an overall higher return on their capital investment in mining operations. Right now, macroeconomic conditions for the other metals are high, which is helping boost overall silver production.
However, an operator may still refrain from adding more silver to the market if there is not demand for additional production. Otherwise, a lower product cost can mean greater profits for an operator if its competitors don’t lower their costs and prices as well. If the competitors drop their prices, the operator would be forced to do likewise, reducing their profit margin.
What Is the Current Demand for Silver?
Global silver demand has risen since 2020. As Smirnova writes, “On the demand side, all segments of silver demand are rebounding, led by industrial, jewelry, and physical investment.” Demand for precious metals often increases during times of economic uncertainty.
Since demand seems likely to increase, outpacing supply gains, analysts believe silver is poised for a price increase. In fact, Smirnova argues that silver is “historically undervalued relative to gold right now,” a factor worth considering for those interested in buying silver.
So What Are the Silver Demand vs. Supply Trends to Watch?
With the price of silver being an outgrowth of supply and demand trends in the marketplace, there are a few factors to look out for to understand what could happen for the price of silver over the long term.
Silver’s Recent Performance History
Both supply and demand for silver have increased since 2020, with demand still outpacing production. The price of silver, though, has not responded to this shift. As we wrote earlier, this has led analysts such as Chris Vermeulen to say that silver is extremely undervalued and that he expects silver’s price to soar in 2022. JP Morgan, on the other hand, believes the price of silver, because of the “ultra-accommodative central bank policies,” will remain low over the course of the year.
Performance history is never a guarantee of future results, but looking at the history may help you understand what to expect. Historically, silver and other precious metals tend to rise in the midst of inflation and economic uncertainty.
Silver Use in Sustainable Energy
Silver is used in photovoltaic devices, such as solar panels and electric vehicles. Before the rise in geopolitical tensions earlier this year, green energy was already a growing industry. Now it is moving even faster, driving up the demand for silver in industrial use at a faster rate than originally expected. The Sprott Report sees “the energy transition story as a large force for silver demand—this year and in future years.”
Silver Supply Deficits and Global Reserves
Silver demand is outpacing supply, evidenced by the recent diminishing of global silver reserves. In 2021, 122 million ounces of silver were added to the global silver reserve, but 270 million ounces were taken out of it for production. As silver demand continues to outpace supply and the global reserve gets smaller, there is a possibility that a price increase will follow.
As mentioned above, byproducts of silver mining, such as copper, can impact the price of silver production and therefore affect the market price of silver. Keeping an eye on how these other materials are performing can give an indication of what may happen with silver prices.
As long as the price for these other metals are high, mining companies are incentivized to mine more, essentially subsidizing silver mining. Higher production can increase the overall supply of silver. However, a drop in byproduct prices could diminish overall production.
Return of Large-Scale Events
During the pandemic, large-scale events—weddings and other parties, for example—screeched to a halt, affecting the demand for some products such as silverware and sterling silver jewelry. Now that large-scale events are resuming, it will be important to watch the overall impact on silver demand.
Overall Economic Growth
Like gold and other precious metals prices, silver prices can often move opposite to those of stocks and other similar paper-based assets. As the United States continues to edge toward a potential recession, there is a possibility that still more people will turn to silver as a hedge, driving up demand even further.
The overall state of the economy influences the silver spot price just as it does prices on the stock market. It’s always good to talk to an expert when considering the right time to buy silver.
Should You Buy Silver Right Now?
The choice to buy silver, whether as a physical asset or as part of an IRA, depends on your situation. What are your goals? What is in your current portfolio? Where are you in your financial journey?
To stay better informed, be sure to read our earlier analysis on silver trends in 2022 and look though all the reasons to buy physical silver. Precious metals can be a stable part of many people’s portfolios, so you could consider opening a gold- and silver-backed IRA as well.
If you are interested in buying precious metals, you can request a free information kit on precious metals.