Silver Jewelry Demand Expected to Rebound Sharply in 2021

Demand for silver jewelry is expected to rebound sharply in 2021, according to a report released by the Silver Institute.

The COVID-19 pandemic crushed silver jewelry demand this year. The economic slowdown, coupled with record silver prices in India and higher US dollar prices, is expected to drive a 23% decline in silver jewelry demand in 2020. But the Silver Institute report anticipates a bounceback in 2021, with a projected 13% recovery even with the expectation of higher silver prices.

Silver jewelry consumption currently accounts for 20 percent of total silver demand. That is expected to increase to a quarter of demand by the mid-2020s. In 2019, jewelry production consumed 200.2 million ounces of silver. That was just shy of the 2018 record of 201.9 million ounces.

India ranks as the largest producer of silver jewelry, accounting for 35% of total fabrication.  Demand for silver jewelry in India is projected to fall to a seven-year low in 2020, driven by economic weakness, record domestic silver prices and the pandemic. But analysts expect a strong recovery in 2021. The outlook beyond next year also appears favorable as the Indian economy improves, coupled with rising consumer confidence and as the market increasingly embraces higher purity, sterling silver jewelry.

The United States is the second-biggest consumer of silver jewelry behind India.  Jewelry demand is expected to grow by 10% in 2021 primarily due to a recovery in consumer spending, offsetting the 10% forecasted loss in 2020.

The longer-term outlook is for steady growth to emerge, primarily due to steadier economic expansion, with record levels of silver jewelry consumption achieved by the mid-2020s.”

European silver jewelry demand is forecast to fall by 17% in 2020, but next year’s forecast calls for a rebound of 14%, as retailers rebuild stocks and consumption starts to return to more normal levels.

Looking beyond 2021, the report projects that global demand for silver jewelry remains on track to achieve further successive gains, benefiting from increased demand in every major market.

While jewelry demand was hard-hit by the pandemic, investment demand for silver has soared and is expected to hit a 5-year high in 2020 as physical silver investment is expected to surge by 27% on the year.

On the supply side, mine output is expected to drop significantly in 2020. Production is projected to fall by 6.3% to about 780.1 million ounces.  The big drop in silver output is largely a function of mine shutdowns due to the pandemic, but mine output was already trending down before coronavirus. Global mine production fell by 1.3% in 2019.

Looking at the big picture, the biggest driver for precious metals continues to be Federal Reserve monetary policy. In order to turn bearish on gold and silver, you have to believe the Federal Reserve is actually going to tighten monetary policy and the dollar is going to remain strong. But given the massive dose of monetary heroin the central bank has injected into the economy, the Fed really has no way out. There is no exit strategy from this extreme monetary policy. That bodes well for both silver and gold in the long-term.