In the face of unprecedented uncertainty caused by the pandemic, silver served as a security asset. As expected.
But the potential for the precious metal doesn’t stop there, and a different dimension will be driving the next phase of the silver bull market this year and beyond.
The silver market is changing
In 2020, the price of silver rose by almost 50% over the year despite the market being in surplus. Moreover, the surplus was the highest since at least 2010.
The surplus was the result of weak industrial demand. In the end, COVID-19 led to a lockdown and a decline in production in almost every direction, including industries that use silver, such as electronics.
The only thing that saved the silver metal in 2020 is investment demand. Because of it, the price of silver rose sharply.
Investment demand will continue this year. Moreover, as the world cope with the pandemic, industrial demand will begin to rise as well.
The Silver Institute forecasts total supply to rise 8% to about 1.06 billion ounces. Demand will almost double, 15%, to 1.04 billion ounces.
As a result, the outlook for silver is very optimistic. By the end of this year, the market surplus will no longer be the same as in 2020.
But there is another factor that pushes the price of the precious metal upwards and could open billions of dollars in market value to silver miners and related companies.
Going green energy
The trend for responsible ESG investing (environment, society and governance) is gaining momentum. It includes a selection of investments, such as stocks and bonds issued by companies, that conform to a set of standards.
Think of ESG as “best practice” in terms of sustainability, diversity and governance. The more successful the company meets these requirements, the more attention will be paid to it by investors focused on ESG.
How does this relate to silver? Silver is as important to the green energy transition as cobalt, lithium, or any other “green” metal.
According to Sprott, the top three green drivers for silver metal will be:
- electric vehicles and infrastructure,
- solar energy,
- and fifth generation (5G) cellular networks.
For example, an electric vehicle (EV) uses about twice as much silver metal as a car with an internal combustion engine (ICE). Sales of electric vehicles are projected to exceed sales of ICE vehicles by 2030.
Solar demand for silver may fluctuate over the medium term. In 2019, photovoltaic installations (or, in other words, systems that convert light into electricity) consumed about 100 million ounces of precious metal, or 11% of the total supply.
Demand from the renewable energy sector is expected to remain strong. Europe, for example, plans to increase the capacity of solar installations by almost 9% annually by 2025.
The demand for 5G development is also growing. It is projected to increase from the current 7.5 million ounces per year to about 23 million in 2030. If the supply does not match the growing demand, we may face a market deficit, which is optimistic for the precious metal price.
This “new industrial” demand, along with traditional investment demand, is already part of what drives the silver metal. Over the past 12 months, the price of silver has risen 40%.
The bull market for silver will flourish as ESG investors turn their attention to the precious metal.