Silver was expected by analysts to outperform gold in 2023 as supply chains for the white metal remained tight, but geopolitics and a fight against inflation kept the price in check.
The start of 2024 isn’t dissimilar. Even though inflationary pressures have eased, it’s still off the 2 percent mark set by central banks, meaning higher-for-longer interest rates will continue to pull down the precious metals markets. These forces will push against the supply deficits faced by the white metal’s industrial demand.
Where can investors expect to see things going for silver in 2024? Could an improving economic environment be the push silver needs to get it over the line?
What is the silver supply and demand forecast for 2024?
While silver has long been traded as a precious metal, its use in electronics, telecommunications and photovoltaics (PVs) especially have driven silver demand over the past few years. The metal’s high reflectivity and very good electrical conductivity have made it indispensable in industrial applications, accounting for nearly half of 1.02 billion ounces produced in 2023. The rest was used by its other applications in jewelry and silverware, photography and through physical investment, bringing total demand to 1.14billion ounces, leaving a deficit of 141 million ounces.
Supply deficits aren’t likely to ease any time soon. New projects are in the works, including Aya Gold and Silver’s (TSX:AYA,OTCQX:AYASF) Zgounder expansion which will add about 3 million ounces in 2024 before being increased to 6 million ounces in 2025; Endeavour Silver (TSX:EDR,NYSE:EXK) is also building its new Terronera mine which should be complete by the end of 2024, but its annual production of 4 million ounces of silver won’t be available until 2025.
Even with this additional supply, it won’t make a meaningful dent in the shortfall of silver. Peter Krauth of Silver Stock Investor told the Investing News Network (INN) that he doesn’t see much growth in production through 2024 or beyond. “Recent research from Bank of America based on guidance from the largest silver producers suggests that mined silver supply peaked in 2016 and will not match that level again anytime soon,” he said.
Michael DiRienzo of the Silver Institute told INN the current price of silver isn’t incentivizing greenfield exploration activities.
“Much of the development in exploration is seen in brownfield exploration to increase reserves and extend mine life,” DiRienzo explained. He also noted a change in mining laws in Mexico, a primary supplier of silver, would reduce the length of mining concessions from 50 to 30 years or cancel them outright if no work is completed within two years, could further challenge activities.
Krauth had a contrary viewpoint, suggesting there have been great results from companies like Aya Gold and Silver, Dolly Varden (TSXV:DV,OTCQX:DOLLF), Summa Silver (TSXV:SSVR,OTCQX:SSVRF) and Blackrock Silver (TSXV:BRC,OTCQX:BKRRF). “The problem is much of the silver being found will not find its way into production for years and, even then, will only partly offset depleting reserves,” Krauth said.
One factor that could impact supply is protests, particularly in Latin America, like those seen over the past few years. Even though they’ve slowed, recent protests in Panama over First Quantum’s (TSX:FM) Cobre Panama copper mine highlight just how quickly things can turn around. “It’s difficult to say if this trend will continue as we cannot predict unforeseen disruption. However, this is a risk in silver supply given that just Peru and Chile comprise 18 percent of global silver output,” DiRienzo said.
Krauth issued a similar sentiment. “The largest single event was probably the four-month strike at Newmont’s (TSX:NGT,NYSE:NEM) Penasquito mine in Mexico. Although this is primarily a gold mine, it produces an impressive 30 million ounces of silver per year. That doesn’t sound like much compared to 800 million ounces of silver mine supply, but the market is already in a substantial annual deficit position, so this production loss is material.”
What factors will move the silver market in 2024?
It’s not just supply and demand affecting the price of silver in 2024. Markets for the past two years have been affected by 40 year highs in inflation which has been met with 22 year highs in interest rates.
The US Federal Reserve has set a goal of bringing inflation down to the 2 percent level. In statements made on December 13 Chair Jerome Powell indicated he doesn’t see these being met till 2026 saying, “as evident from the SEP (Summary of Economic Projections) we anticipate the process of getting inflation all the way to 2 percent will take some time. The median projection in the SEP is 2.8 percent this year (2024), 2.4 percent next year (2025), and 2 percent in 2026.”
Powell also indicated that while the Fed is halting rate hikes for the time being they also haven’t been taken off the table, continuing the wait-and-see approach and higher-for-longer interest rates.
“While we believe our policy rate is likely at or near its peak for this tightening cycle, the economy has surprised forecasters in many ways since the pandemic and ongoing progress toward our 2 percent inflation objective is not assured. We are prepared to tighten policy further if appropriate, we are committed to achieving a stance of monetary policy that is sufficiently restrictive to bring inflation down to 2 percent over time and to keeping policy restrictive till we are confident inflation is on a path to that objective,” he said.
This wait-and-see approach has implications for both sides of the silver equation. An easing of fiscal policy will benefit institutional investors who feel its close to bottoming out, it will likewise benefit junior companies looking to raise capital for exploration and development. However, sustained rates and suborn inflation could delay a silver breakout even longer.
DiRienzo sees pricing for silver largely being determined by institutional behaviour, which will be influenced by how the Fed chooses to implement policy in 2024. “The Fed has indicated that it will only reduce rates by around 25bps in 2024, while the market expects the Fed to adopt a far more dovish interest rate policy next year. However, we believe that the Fed will maintain its more hawkish policy throughout next year, and as the market shifts towards the Fed’s stance this will lead to investor liquidations, which in turn will weigh on silver, sending it toward the $20 level,” he said.
On a more positive position, Krauth sees the conditions being right for silver to rally in 2024. “One of the most significant for me was when we saw almost the entire US Treasury yield curve peak above 5% in mid-October. Since then we had the US Dollar Index peak at 107. Both of these have fallen considerably since, I believe on the market’s view that the Fed has stopped hiking rates, with the expectation that rate cuts will come sometime in 2024,” Krauth said.
He also noted comparisons to the gold market, “As well, since mid-October silver stocks have been outperforming gold stocks: also a bullish sign for the sector. I expect gold to keep making new highs and for silver to continue to rally well into 2024,” and sees the possibility of silver hitting close to the US$30 mark in the second half of the year.
Investor takeaway
Over the last decade, silver has slowly been securing its position as an industrial metal, but it still hasn’t lost its shine as a counterpart to gold. This has at times been pulling it in opposite directions, but with the pandemic starting to appear in the rear-view, it may be set for supply and demand forces to outweigh institutional investors and haven seekers.
As a key component in electronics and solar industries, its use in industrial segments is becoming far more important, and the significant demand from these sectors should be setting it up for the breakout analysts have been predicting, but it’s not happening. Is 2024 going to be the year?
Investors may want to ask that question, but with the understanding, it still faces massive headwinds from lack of exploration and production as a primary resource, global economic policies and local government regulations.
Don’t forget to follow us @INN_Resource for real-time updates!
Securities Disclosure: I, Dean Belder, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: Prismo Metals and Silver North Resources are clients of the Investing News Network. This article is not paid-for content.
The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
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