Investor's Guide to Silver

Key takeaways

• Silver faces a structural supply deficit for a fourth straight year.
• Geopolitical risk and uncertainty driving investment in safe havens.
• Energy transition set to power industrial demand for silver over the long term.

The price of silver: an overview

Silver prices continued to power higher through most of 2024, rising to a 12-year high of $34.91 an ounce on October 22. That compares with $23.79 an ounce in late December 2023 – a gain of $11.12 an ounce or 47% over the first 10 months of 2024.

Silver’s bullish performance in 2024 took the price to its highest since October 2012.  The surge has focused minds on silver’s historic highs of $48.70 an ounce attained in April 2011 – a level that came close to the metal’s all-time highs of $50 an ounce seen in January 1980.

Key drivers behind the price surge

Several factors have converged in 2024 to drive silver prices higher.

Fundamental analysis

From a physical supply and demand perspective, the data for silver is undoubtedly bullish. The global market for silver faces a structural supply deficit in 2024 for a fourth consecutive year, according to the industry group, Silver Institute in their report: Silver Supply & Demand.

The market faces an estimated shortfall of 215 million ounces in 2024, and this follows a deficit of 184 million ounces in 2023, 263.5 million ounces in 2022 and 95 million ounces in 2021, according to the group’s figures. The ongoing deficit is due to the global supply of silver largely stagnating over the last four years, while demand has increased every year during the period.

Central Bank monetary policy

Silver prices have also benefited as central banks in several major economies began to cut interest rates in 2024. Major economies cutting rates in 2024 include the US, Canada, EU, UK and China. 

Lower interest rates reduce the opportunity cost of holding non-interest-bearing assets such as precious metals. Lower borrowing costs also stimulate economies, helping to boost industrial demand for silver. Central banks are beginning this rate-cutting cycle as inflation has come down towards targets, while economic growth is looking somewhat fragile.

Industrial demand

Roughly half of the total demand for silver comes from its use in industrial applications, which continues to present a growth story. Silver’s ability to conduct thermal and electrical energy and its unique antimicrobial properties make it a much sought-after metal in industrial applications as diverse as solder and brazing alloys, electrical circuits, semiconductors, touch screens, medical and dentistry equipment, nuclear reactors, aerospace, defence and water purification systems. 

However, silver’s long-term future is not just linked to these cyclical factors. An important secular demand growth picture for silver is also linked to global shifts toward cleaner energy. Silver is already playing a major role in the energy transition, as industries move away from polluting energy to renewable energy and high-tech low-carbon industrial processes. This trend positions silver as a beneficiary of growth in demand for batteries, energy storage and solar panels, and more advanced computing systems based on Artificial Intelligence technology.

Investor demand for safe havens

Silver, like gold, has also taken support from increased investor interest in safe-haven assets, as 2024 has seen a marked increase in geopolitical risk. Ongoing conflicts in Ukraine and the Middle East have heightened the risk that hostilities spiral into a deeper conflict that could lead to a significant confrontation between major powers. 

While these risks are hard to quantify, they clearly drive investor interest in tangible assets such as gold and silver. These assets can also offer protection in times when faith in economies and fiat currencies is at a low ebb. Taking this theme a step further, there is an ongoing discussion about de-dollarisation among some countries, led by the BRICS nations – Brazil, Russia, India, China and South Africa – as well as the potential for these nations to launch a new currency that could be partially backed by precious metals.

In recent episodes of Kinesis’ weekly precious metals commentary show, Live from the Vault, Andrew Maguire examined the transformative impact of BRICS’ latest currency initiatives, as the multi-polar alliance positions gold at the heart of international trade. 

Watch the episode here.

Different ways to invest in silver

Physical silver

Perhaps the most obvious way to invest in silver is to buy bullion-grade silver coins or bars. These are easy to purchase, are accurately graded for purity, and are recognised around the world. The advantages of owning physical silver include relative affordability compared with gold, and certainty over ownership. 

Silver can also provide a hedge against inflation and currency devaluation. Some potential disadvantages include security or the price point associated with professional storage and insurance, lack of yield, price premiums over spot prices, and market price volatility.

Silver ETFs

Silver exchange-traded funds (ETFs), such as iShares Silver, are investment vehicles which allow investors to gain exposure to silver without owning the physical metal itself. 

We discuss the differences between two popular methods of silver investment, comparing Silver ETFs with silver-backed digital currencies, in this article here. 

Silver ETFs are funds which track the price of silver, allowing investors to profit from price appreciation. They can be suitable for investors who wish to diversify their portfolios, which may contain various assets such as stocks, bonds, or cash. 

Silver prices can be more volatile than gold at certain times, creating both opportunities and risks for investors holding physical silver as well as silver ETFs.

Silver mining stocks

A further option is to invest in the companies mining physical silver. This is a way to gain exposure to silver which may be leveraged, as the share price appreciation can be proportionally larger than that of the metal itself. However, most mining companies focus on industrial metals such as aluminium, copper and iron ore, and often produce silver as a byproduct. 

Examples of silver mining companies include First Majestic Silver, Pan American Silver and Wheaton Precious Metals. Silver mining company share prices can appreciate significantly under favourable market conditions, but equally can be vulnerable to events such as flooding in mining operations, labour disputes and loss of demand due to a change in economic conditions.

Silver-backed digital currency

Kinesis offers a new form of money based on fully allocated precious metals, which reintroduces physical backing to money while offering the everyday utility of traditional fiat currency. 

This form of money aims to overcome the shortcomings of traditional fiat currencies, which are vulnerable to inflation and debasement as governments deploy quantitative easing – printing more currency, weakening its value. 

Kinesis silver (KAG) is a digital currency backed by physical silver. Each KAG is backed by one ounce of physical silver stored in fully insured and audited vaults. Investing in silver allows the user to spend, trade, send and earn physical silver anywhere in the world.

Silver forecast for 2025

Short to medium-term forecast

Silver’s surge to 12-year highs may carry a risk of a further downward correction, particularly if one or more recent supportive elements fade. Silver has taken support from rising gold prices, rising inflation, falling interest rates, declining faith in fiat currencies, rising industrial demand and heightened geopolitical risk. 

As of mid-November 2024, silver prices have come off their late October peak, trading at just above $30.00 an ounce. However, the outlook for silver remains bullish over the long term. Notwithstanding downside price risks which we have already highlighted, the longer-term picture is constructive for silver.

This view is underpinned by several factors: the global net supply/demand balance for silver continues to show a structural supply deficit as total supply is failing to keep up with global demand for a fourth consecutive year in 2024.

Moreover, major economy central banks are already cutting interest rates, reducing the opportunity cost of holding non-yield-bearing assets, and precious metals continue to attract investors due to their haven appeal during times of economic uncertainty.

Long-term forecast for silver

Beyond these short-to-medium-term factors, the longer-term story for silver is bullish, as the metal is set to be a beneficiary of the global energy transition. Silver is a key component of solar panels, for example, which provides a growth trajectory as clean energy from infinite sources such as wind solar, wave and tidal energy continues to displace fossil energy sources such as coal, oil and gas, which are limited in supply, pollute the air and drive climate disruption.

Silver also finds an important role in applications as diverse as electric vehicles, batteries and energy storage, electrical circuits, aerospace and defence, medical and dental applications, water purification and nuclear energy.

As of November 2024, market observers broadly expect silver to rise over the long term.

For example, Germany’s Commerzbank sees silver prices largely holding their recent gains, trading at around $33.00 an ounce by the end of 2025.

Bank of America meanwhile – which correctly forecast rising silver prices through 2024 – forecasts further gains for silver to average at $35 an ounce in 2026.

US bank JP Morgan has forecast that silver prices will average $36.00 an ounce in 2025, citing “strong macro fundamentals and a supportive supply and demand backdrop”.

There is also discussion about silver prices clearing their all-time high of $50.00 an ounce over the long-term, and paving the way for triple-digit silver prices, although few analysts expect gains of that magnitude in the short-to-medium term.

Citations

• Does Soaring Industrial Demand in 2024 Signal a New Era of Higher Silver Prices?
• Can The Silver Price Rise To $100? – InvestingHaven

Frank’s experience covering the commodities markets spans 22 years, with a particular specialism in metals, carbon and energy markets. He has worked as a senior editor for S&P Global Commodity Insights (formerly Platts) and before this, at ICIS-LOR, a part of Reed Business Information (Reed Elsevier), where he covered the petrochemicals markets from 2003 to 2005.

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