Silver Demand on Pace for Record Year
Silver demand is on pace to hit record levels in 2022, driven by new highs for physical investment, industrial demand, jewelry, and silverware production, according to the Silver Institute’s Interim Silver Market Review.
Global silver demand is projected to reach a new high of 1.21 billion ounces in 2022. That would be a 16% increase from 2021.
Institutional demand for silver has faced headwinds due to rising interest rates with Federal Reserve’s inflation fight. This has led to a decrease in silver ETF holdings. But demand for physical silver has been robust. Physical investment demand is on pace to jump by 18% to 329 million ounces this year. According to the Silver Institute, “Support has come from investor fears of high inflation, the Russia-Ukraine war, recessionary concerns, mistrust in government, and buying on price dips. The rise was boosted further by a (near-doubling) of Indian demand, a recovery from a slump last year, with investors often taking advantage of lower rupee prices.”
We’ve seen signs of this high demand in the rapidly decreasing levels of silver in COMEX vaults.
Industrial demand makes up more than 60% of silver usage each year. It is on track to set a new record of 539 million ounces in 2022. The push for green energy has helped drive industrial demand higher with more and more silver being used to produce solar panels. The electrification of vehicles is also boosting demand, along with the adoption of 5G technologies. According to the Silver Institute, demand in these emerging markets has helped silver overcome macroeconomic headwinds as the global economy has slowed.
Demand for silver jewelry and silverware is projected to surge by 29% and 72% respectively. Jewelry production will use about 235 million ounces and silverware fabrication will consume another 73 million ounces this year. What the Silver Institute describes as “an unprecedented rebound in Indian demand” is driving demand in these categories higher. “This has partly been driven by strong inventory replenishment ahead of the festive and wedding season, following heavy stock depletion in 2021.”
Silver mine output will only chart a small 1% increase in 2022. As a result, the global silver market is forecast to record a second consecutive deficit in 2022. The 194 million ounce shortfall will represent a multi-decade high and will likely come in at four times the level seen in 2021.
With silver prices still relatively low, this is a great time to add silver to your investment portfolio. According to research by Oxford Economics, investors would benefit from an average of 4 to 6 percent silver allocation within a diversified portfolio. This is far below the average investor’s exposure to silver.
There are signs that silver is significantly undervalued. The silver-gold ratio is currently over 83-1. That means it takes over 83 ounces of silver to buy an ounce of gold. To put that into perspective, the average in the modern era has been between 40:1 and 50:1. Historically, the ratio has always returned to that mean. And when it does, it does it with a vengeance. The ratio fell to 30-1 in 2011 and below 20-1 in 1979.
Historically, when the spread gets this wide, silver doesn’t just outperform gold, it goes on a massive run in a short period of time. Since January 2000, this has happened four times. As this chart shows, the snapback is swift and strong.
And as the Silver Institute projections show, The supply and demand dynamics also look good for silver even with a looming recession.
Silver Is On Sale, But It Won’t Be For Long!
The fundamental backdrop has never been stronger. The underlying data indicates that the snapback will come soon and potentially play out very quickly. This is a great opportunity to add the diversifying power of silver to your portfolio.