Considering silver’s supply/demand fundamentals over the next few years, the white metal still has plenty of relative value to recapture, in the view of Bart Melek, Head of Commodity Strategy at TD Securities.
Silver fundamentals to remain tight as industrial demand firms, investors show strong interest
“Silver tends to do well when there is a favorable environment for gold. Considering that the white metal has a historical volatility roughly double that of gold, and given that it is directionally synchronized, it should outperform gold into 2022.”
“In 2020, the investment community and traditional buyers of physical silver purchased some 531 million oz of the metal, and we project that they will buy another 885 million oz by the end of 2023. In addition to benefiting from the monetary, FX and macro drivers like gold does, the white metal is projected to see an additional 115 million oz in industrial demand over the same period.”
“Since over 60% of demand comes from the industrial sector, silver should benefit from firmer industrial uptake, as the global economy continues to recover after the Covid-inspired deep global recession last year. The increase in demand should accelerate in the second half again, as the microchip shortage, which moderated auto and other industrial production, and other logistical issues get resolved.”
“Expenditures on green energy infrastructure, decarbonization, and electrification should also help silver to rally, as it is intensively used in solar panels and electrical circuits. The intensity of silver use in the general economy is set to be sharply higher over the next decade, starting in 2021.”
“Given the state of supply, and considering the long-term positive demand prospects from investors and industrial users, prompts us to say that silver should trade at around $30/oz over the next 12 months. The long-term may be even more impressive, as demand from green friendly sources and limited capital investment in primary and secondary silver mine capacity tighten the fundamental outlook.”
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