Silver: Investment opportunities amidst growing deficit and rising demand

The silver market is experiencing a dynamic period driven by rising demand across various industries, particularly photovoltaic, electronics, and automotive. With demand outpacing supply for the fourth consecutive year, silver is becoming an attractive investment opportunity, offering both strategic diversification and potential for capital appreciation. In this article, FBS analysts will examine the factors fuelling the growth of the silver market, explore its role as a safe haven asset in the face of economic uncertainty, and examine the investment opportunities it presents for traders and investors.

Growing deficit

Silver deficit within 10 years. Source: The Silver Institute

The demand for silver is experiencing a significant surge, leading to a pronounced market shortage. According to the Silver Institute, the photovoltaic industry's silver demand soared by 64%, climbing from 118.1 million ounces in 2022 to 193.5 million ounces in 2023. This growth is projected to continue, with a 20% increase anticipated in 2024.

Silver demand across all industries rose by 11% to a record high of 654.4 million ounces in 2023. This surge is largely attributed to the structural benefits of the green economy, particularly in the photovoltaic sector.

The global silver shortage is expected to escalate by 17% to 215.3 million ounces in 2024. This increase is driven by a 2% rise in demand due to robust industrial consumption and a 1% decline in overall supply. The industry association highlighted that silver, essential in various sectors, including jewelry, electronics, electric vehicles, solar panels, and investment purposes, has faced a structural market deficit for the fourth consecutive year.

Additionally, China's silver imports are expected to rise, driven by the booming solar energy sector pushing prices. The growing demand for silver in China is influencing the international market, as evidenced by the increasing premium in the foreign market.

New safe haven

While gold has traditionally served as the primary safe haven asset for investors during times of uncertainty, silver's high correlation with gold makes it an appealing alternative. These bullish silver forecasts will likely attract the attention of many portfolio managers looking to safeguard their investments.

Gold to Silver ratio

The gold-silver ratio, a straightforward indicator of how many ounces of silver are required to purchase one ounce of gold, provides valuable insight into the relative value of these two metals. Historically, this ratio averages around 50-60 ounces of silver per ounce of gold. Silver is considered cheap when the ratio is higher; when it is lower, gold is considered affordable. 

Currently, the gold-silver ratio stands at about 75, suggesting that silver is oversold and potentially undervalued. This presents a compelling opportunity for investors seeking alternative safe haven assets, especially in light of the increasing demand and supply constraints in the silver market.

Investment opportunities

XAGUSD forecast

According to FBS analysts' observations, XAGUSD (silver in USD) recently broke through a significant resistance zone at $29.00. Over the year, the next targets will be the $35 and $50 resistance levels. 

XAG/USD longterm forecast

In the long term, a cup-and-handle pattern is forming on the charts. If silver breaches the $50 resistance, it could rise to $60.

Investors and traders should monitor these technical patterns and market fundamentals closely. From FBS's perspective, silver represents a significant investment opportunity in the coming years due to growing demand, persistent scarcity, and potential as a safe haven.

Conclusion

The silver market presents a compelling picture of supply and demand imbalances, shifting investor preferences, and burgeoning industrial applications. As demand for silver continues to outstrip supply, investors can capitalize on its intrinsic value as a precious metal and industrial commodity. As silver gains strength as a safe haven asset and technical indicators signal bullish momentum, it becomes a strategic asset class for portfolio diversification. With FBS analysts, you will follow market developments with insights into supply and demand dynamics. With this approach, investors can confidently navigate the silver market and capitalize on its promising growth trajectory.