The yellow metal has also experienced a sharp rise in its price this year, but silver outpaced it and this lowered the gold-to-silver price ratio. On a year-to-date basis, gold climbed about 32% while silver surged about 42%. In comparison, stock market returns have been relatively muted, more so when the current round of correction is accounted for.
Silver prices climbed about $10 an ounce since the beginning of the year, affected by several factors, including increasing geopolitical tensions in West Asia and a threat of retaliatory action by Israel against Iran following an attack by the latter. Like gold, silver has safe-haven attributes. Mint takes a look at what has energised silver prices since the beginning of the year.
US Fed interest rate action
A cut in interest rates usually leads to a rise in bullion prices because of the inverse relationship between the two. Gold and silver are a hedge for inflation and global uncertainties, and prices of both moved up after the US Federal Reserve indicated the end of the rate hiking cycle.
The Federal Open Market Committee cut interest rates by 50 basis points at its meeting in September, the first cut in four years, and indicated more cuts into 2025. Falling interest rates trigger changes in holding positions in different asset classes, which often translates into an increase in investment demand for silver.
Chinese stimulus
Commodity prices in the last few decades have had a strong relationship with China’s growth. The Chinese authorities and the People’s Bank of China, the nation’s central bank, announced a series of measures in recent weeks to stimulate the economy. More measures are expected to be announced in the weeks ahead as many anticipate the measures announced so far are not enough to accelerate growth in the world’s second-largest economy, which the International Monetary Fund estimates will expand 4.8% in the current calendar year.
The stimulus measures are, however, already showing its impact on commodity prices, including silver. China is a major importer of silver and a turnaround in its economy could boost demand for silver, particularly for industrial uses. The 2011 rise in silver prices was also aided by spending and growth in China.
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Supply shortfall
Unlike gold, the world has abundant reserves of silver. Global reserves at primary silver mines and projects totalled 3,466 million ounces (107,812 tonnes) in 2023. Yet, supply has been falling short of demand for three years, the World Silver Survey 2024 published by the Silver Institute noted. The global market deficit in 2023 was 184.3 million ounces (5,732 tonnes), lower than the deficit in the preceding year. Robust demand for industrial purposes and the sluggish supply from mines contributed to the shortfall. The shortfall would have been larger if the demand for bar and coin investment, jewellery and silverware had not fallen in some parts of the world. The deficit is expected to widen to 215 million ounce this year, Silver Institute’s president Michael DiRienzo said during a television interview recently.
Supply was affected by a fall in output in key producing countries. The 2023 output was hit by a four-month-long labour strike in one of the largest mines in Mexico, lower ore grades and some mine closures in Argentina, Australia and Russia, the World Silver Survey said. Production in the current year is likely to be below last year’s level, the survey forecast.
Rise in industrial demand
Silver has multiple industrial applications. The recent surge in industrial demand for silver comes from the photovoltaic sector. The demand of the photovoltaic sector was estimated at 232 million ounces in 2024, and that’s about a third of the demand for industrial applications, and more than the demand for jewellery (211 million ounces) and net physical investment (212 million ounces). The demand from the photovoltaic sector jumped 64% in 2023 as the world looked to adopt green forms of energy.
The highest demand for silver comes from the electrical and electronic manufacturing units – silver is found in almost every electronic device. It is one of the best conductors of electricity and therefore it is on the printed circuit board of mobiles, computers and machinery. The 2024 annual demand for electrical and electronic application is estimated at 485.6 million ounces. Some say that the ongoing wars have also helped silver as some amount of silver is used in missiles.
The overall demand for industrial applications is estimated to rise 9% in 2024, after an 11% growth in 2023, despite challenges to economic growth.
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India factor
India is a small producer of silver, its output is just a little more than a tenth of what Mexico produces annually. However, it is a big consumer and importer of white metal. Most of its demand comes from the jewellery fabrication, silverware fabrication and physical investment. Demand dropped in 2023 as the depreciating rupee and increased import duties pushed up the price of silver.
India’s demand for silver for fabrication of jewellery was 83.7 million ounces in 2023, about 41% of the global demand for that purpose. In the previous year, India’s demand of 111.6 million tonnes was 47% of the global demand, according to the World Silver Survey. The demand for the white metal for silverware fabrication at 37.5 million ounces was 68% of last year’s global demand, down from 53.6 million ounces, accounting for 73% of global demand in 2022.
The demand for physical investment is relatively small compared to the total global demand and the US demand. Yet, the quantity in demand is fairly high – in 2023, it was 49.3 million ounces (20% of the global demand) and in 2022, it was 79.4 million ounces (24% of the global demand).
Thus, India’s demand for silver can impact global supply shortfall as well as prices.
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