Silver prices has been sliding recently due to the weakening of gold prices. However, analysts studying the markets for precious metals anticipate that silver prices will bottom out at either the end of 2020 or the start of 2021 and then enter a period of upswing.
Silver is a precious metal like gold but tends to be traded at lower prices. Since silver functions as a store of value, it is in high demand during periods of inflation or recession, when investors seek to convert their high-risk assets into low-risk ones. Data from industry association the Silver Institute shows that silver investment demand grew 12% year over year for 2019 and further rose by 10% for the first half of 2020 when compared with the same period of the previous year.
In an article published on Kitco, Peter Krauth, an analyst focusing on the resource and energy markets, says that the incoming presidency of Joe Biden in the US and the decline in the supply of silver ores will cause silver prices to rebound in the near future. President Biden has stated that he supports the development of a green economy and proposed to spend US$1.7 trillion in federal money over 10 years to achieve net-zero carbon emissions by 2050. If the ambitious climate plan is implemented, then the solar market of the US will likely receive a huge influx of investments. This, in turn, will also lift the demand for silver as it is a key material used in photovoltaic cells.
Krauth refers to a report from the Silver Institute on the role of silver in the solar sector. The report states that photovoltaic generation in the US grew by an average rate of 47% annually during the period from 2008 to 2019. The Solar Investment Tax Credit, in particular, has been instrumental in getting individuals and businesses to procure photovoltaic technologies. The report also points out that photovoltaics accounted for about a third of newly installed generation capacity in North America in 2019.
Silver has many industrial applications because of its properties. It attains a very high level of performance with respect to reflectivity, conductivity, and heat dissipation. At the same time, it is chemically stable. Conductor and catalyst are two important roles of silver, and the metal is often present in alloys and electrode materials. In the manufacturing of photovoltaic cells, silver is a key ingredient in the conductive paste that serves as the electrode material. Silver is also used as a catalyst for the production of ethylene oxide, a common intermediate chemical.
A study from the University of Kent finds that “an average solar panel” has around 20 grams of silver, and the price of the metal comprises approximately 6.1% of the cost of the panel. Besides photovoltaics, other new sources of silver demand are emerging as well. Electric vehicles and 5G telecom equipment, for example, are two applications that will consume a lot of silver supply in the future.
To reduce production cost, manufacturers of photovoltaic cells are trying to cut back their use of silver through technological improvements. However, lowering the silver content or substituting silver with another material is very challenging because silver has many inherent advantages such as high conductivity.
Regarding the supply side, the report from the Silver Institute says that 2019 was the fourth consecutive year that saw a decline in the output from silver mines worldwide. Although both the investment demand and the industrial demand for the metal continue to rise, only few new mines have been opened. Consequently, the global supply of ore-grade silver is shrinking steadily. Reserves, too, are being exhausted.
The Silver Institute projects that the global supply of ore-grade silver for 2020 will show a 4% drop from the previous year. Besides the lack of new mines, the COVID-19 pandemic, for which there is no end in sight, is also another factor behind the decline. Hence, the industry association and Krauth expect silver prices to soon rally.
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