Silver has endured a volatile year, trading above $26 an ounce in March while sinking below $18 an ounce at the start of September.
As we enter the final stages of the year, attention turns to where the price of silver is headed in 2023 and beyond.
Silver price predictions
With silver’s recent resurgence seeing it climb back to near the levels it started 2022 on, attention is switching to where the price will head in 2023 and beyond. With the macroeconomic clouds caused by central bank interest rate rises starting to lift, silver’s bullish fundamental case is starting to gain more attention.
Ole Hansen, Head of Commodity Strategy at Saxo Bank, sees a looming shortage of supply in both Europe and China and now favours silver over gold in the bank’s latest quarterly outlook. Delegates at the LBMA’s conference in Lisbon in October also saw plenty of upside potential for silver, with their average forecast for the year ahead coming in at $28.30 an ounce on the back of a tightness of supply exacerbated by unprecedented demand.
In contrast, the World Bank took a more conservative view, seeing silver as continuing to trade around its current levels for the foreseeable future with its forecast of $21 an ounce for both 2023 and 2024.
As ever with markets, predicting the future is nigh on impossible. Who could have planned for a pandemic or the outbreak of war in Europe for example? Yet as 2022 draws to a close, there look to be more reasons for silver to gain in 2023 than for it to fall.
Silver price history
Silver has a history dating back centuries when, for a long period, it was the currency of choice for global trade before it was displaced by gold, then for the fiat currency system in place today.
The precious metal has always traded at a significant discount to its peer, gold, with silver’s record price of $49.48 an ounce achieved in 1980 compared with gold which surpassed $2,000 an ounce earlier this year. As well as trading at a much lower price than gold, the size of the silver market, while still substantial, is significantly smaller than gold, making it more prone to volatile price swings.
Most famously, this price volatility caught the world’s attention during the silver squeeze of early 2021. A wave of buying from retail investors in late January of that year, sparked by chats on the Reddit forum, forced institutional investors to exit short positions they held against the metal, which in doing so caused the price of silver to climb higher still. On February the 1st 2021, silver breached $30 an ounce before the momentum ran out and the price quickly dropped back a few dollars.
Silver’s rally to challenge its all-time high in 2011 also didn’t last with the price plunging below $35 an ounce in a matter of weeks. 2022 has also proven a volatile year for silver with the price suffering a multi-month slump from its March high in excess of $26 an ounce to trade below $18 an ounce in late August and early September. Having reached its nadir earlier in the year, silver is now enjoying a strong finish to 2022, setting up the possibility of another rally in 2023.
Factors which affect the price of silver
Having outlined the historic volatility of silver’s price, let us now delve deeper into the factors that drive those movements. This year has underlined how prone silver is to the macroeconomic environment with the precious metal suffering as a result of a series of interest rate hikes implemented by central banks across the world, in particular the actions of the US Federal Reserve.
The appeal of holding a physical asset like silver diminishes at times of rising interest rates as it doesn’t offer a yield, with other interest-paying assets such as bonds proving more attractive instead. However, Kinesis has evolved the offering of physical silver by bringing forward digital Silver KAG, which generates a monthly yield for all who hold or transact with their silver on the Kinesis Virtual card.
Silver is also considered, like gold, as a haven asset which investors often seek out as a safe place to store their capital at times of increased risk on equity markets. As with commodities more broadly, silver is seen as a hedge against inflation with its finite supply, meaning it holds its value over time.
As well as macroeconomic factors, silver is also driven by the fundamental elements of supply and demand. Silver is used in a wide range of industries, particularly those in the electronics sector where its high conductivity and durability are sought after. As a precious metal, it also attracts demand from the jewellery industry, albeit in much lower volumes than gold.
It is this industrial appeal that has lent silver a bullish fundamental outlook with the metal used in a number of the key sectors as the energy transition and tech revolution progress onwards. Silver is set to be in hot demand following the rollout of 5G, with the metal’s role in the electronic applications used in the technology requiring an extra 16 million ounces of silver by 2025 and as much as 23 million ounces by 2030, according to the Silver Institute.
With silver also a key component within photovoltaics for solar panels and for batteries in electric vehicles, 2022 is set to be a record year with demand in excess of 1.1 billion ounces, according to the Silver Institute.
Finally, silver’s price is also driven by investment demand. This too is also on the rise with holdings of silver in London vaults sinking to their lowest level on record in October 2022 at 26,502 tons, according to the London Bullion Market Association. These outflows were driven by the continued strength of coin and bar demand, especially in the key US and German markets, according to Philip Newman.
In the case of a ‘silver price reset’, says Andrew Maguire, in the latest episode of Live from the Vault, ‘COMEX is in the crosshairs for physical delivery’. Maguire explains how there is not enough registered silver to be delivered, which could force the market makers holding eligible silver to put that up for sale, and convert otherwise undeliverable bullion holdings into ‘registered category’, thus making it deliverable.
In terms of the valuation of silver, the upcoming months might be a pivotal moment for the metal, where a readjustment in price could begin reflecting its true value, rather than one governed by paper market bets.
Rupert is a Market Analyst for Kinesis Money, responsible for updating the community with insights and analysis on the gold and silver markets. He brings with him a breadth of experience in writing about energy and commodities having worked as an oil markets reporter and then precious metals reporter during the seven years he worked at Bloomberg News.
As well as market analysis, Rupert writes longer-form thought leadership pieces on topics ranging from carbon markets, the growth of renewable energy and the challenges of avoiding greenwash while investing sustainably.
This publication is for informational purposes only and is not intended to be a solicitation, offering or recommendation of any security, commodity, derivative, investment management service or advisory service and is not commodity trading advice. This publication does not intend to provide investment, tax or legal advice on either a general or specific basis