Silver prices could be heading for an “explosive” rise in 2024 if global supply lags behind demand and the Federal Reserve makes good on its plans to cut interest rates in the coming months, metals market analysts said.
Although silver has underperformed gold this year, with prices reaching record highs this year, the window of opportunity to acquire silver at bargain prices could be short.
“The window for buying silver in the low to mid-$20s is coming to an end,” said Peter Spina, president of silver news and information provider SilverSeek.com.
It is likely that silver prices will rise towards the major technical resistance at $30 an ounce next year, he told MarketWatch, adding that he is “fully” confident the price barrier will fall.
On Thursday, the most active March silver futures contract became SIH24,
SI00,
settled at $24.39 an ounce on Comex, with prices rising 6.4% for the session to erase the year’s loss. Year to date, trading 1.4% higher, according to Dow Jones Market Data.
Gold futures GCG24,
GC00,
on the other hand, it settled at $2,044.90 on Thursday, up 2.4% for the session, up 12% for the year to date, and trading close to the record high of $2,089.70 from December 1.
Silver’s underperformance
In general, silver moves much more with gold than with other commodities such as copper or oil, and silver’s moves are larger as a percentage than gold’s, says Keith Weiner, CEO of Monetary Metals.
That’s what happened with silver’s recent decline, he said. Silver suffered its eighth straight session loss on Wednesday, marking its longest losing streak in just over a year and a half.
Both gold and silver had experienced similar trends in terms of “lack of investment demand” due to rising interest rates, said Chris Mancini, research analyst at Gabelli Funds. This has mainly manifested itself in outflows from both gold- and silver-backed exchange-traded funds, he said.
The iShares Silver Trust SLV,
which owns 441.47 million ounces of silver, has delivered a net asset value return of negative 0.3% as of Thursday.
However, gold has benefited from a surge in demand this year from central banks, which are buying gold to “diversify the US dollar,” Mancini said.
Read: Global gold purchases by central banks reach a record high during the first nine months of the year
Also see: Gold just hit an all-time high. Is it too late for investors to add it to portfolios?
Solid economic performance this year around the world, and specifically in the US, led to higher short-term interest rates from the Fed and other central banks, and the “subsequent decline in investor demand for gold and silver,” Mancini said.
Global demand for physical silver investments is forecast at 263 million ounces this year, down 21% from 333 million ounces in 2022, the Silver Institute reported in mid-November, based on data from Metals Focus.
Change, of course
Silver prices rose late Wednesday afternoon after the Federal Reserve announced three rate cuts in 2024, instead of the two predicted in September.
That marked quite a change, as silver prices had traded lower the year before that rally.
The prospects for an end to the Fed’s rate hike cycle weakened US dollar and Treasury yields, lending support to dollar-denominated gold prices – and with it silver.
Read: Gold futures are jumping closer to record highs overnight
The Fed’s decision “reversed industrial demand fears,” removing temporary pressures caused by those fears, Spina said.
Fed Chairman Jerome Powell said Wednesday that central bank officials are beginning to discuss when to cut interest rates.
New York Federal Reserve President John Williams appeared to backtrack on those comments, telling CNBC on Friday that Fed officials weren’t really talking about rate cuts at this point.
At some point, the Fed will have to change course on interest rates, Monetary Metals’ Weiner said.
“If they do, it will be a catalyst for higher gold and silver prices, “perhaps much higher,” he said. “We are now in a secular bull market – this is not the bear market of 2012-2018.”
Bullish fundamentals
The global supply of silver is expected to lag behind demand this year for the third year in a row.
The “fundamentals for the silver market are extremely bullish,” Spina said, especially as the structural shortage for silver persists.
The Silver Institute report shows that global industrial demand for silver is expected to grow 8% this year to a record 632 million ounces, supported by investments in solar photovoltaics – used in solar technology – electricity grids and 5G networks , growth in consumer electronics and increasing vehicle production.
The report shows that the global silver supply is estimated at approximately 1 billion ounces in 2023, while total demand is estimated at a larger 1.143 billion ounces. Metals Focus said it believes the shortage “will persist in the silver market for the foreseeable future.”
“The one last major driver that will make silver prices explode is investor interest,” Spina said.
Keep in mind that silver is a “precious green metal,” he said. It benefits from strong growth in mandatory demand for green energy, which “will continue to push industrial demand to new records.”
Meanwhile, silver supplies are being ‘depleted’ as a structural shortage of physical silver competes for remaining supplies, Spina said.
““If gold prices move to record highs in the coming weeks, silver is in the perfect situation to test $30, with a likely breakout to $50… in 2024.””
He expects silver prices to “challenge” $30 an ounce again in the coming months, “if not sooner.”
Keep an eye on gold prices for initial direction, he said. “If gold prices move to record highs in the coming weeks, silver is in the perfect situation to test $30, with a likely breakout to $50. [and ounce] coming in 2024.”