By Stefan Nolte
After a 47% surge in 2020, silver is poised to continue its momentum this year. Most investment analysts and banks’ commodity traders expect silver to trade above $30 an ounce on average.
Silver started last year at $18. The white metal dropped below $12 between February 25 and March 18 as a result of hefty selloffs by large institutional investors. They needed cash to meet their obligations arising from leveraged financial products linked to tumbling stock markets at the start of the coronavirus crises.
The silver price bounced back to its year entry level by the end of May and then surged to over $29 per ounce at the beginning of August, testing the $30 resistance level. After retreating to $22 toward the end of November, silver finished the year 2020 at $26.4 per troy ounce.
The Covid-19 crisis is continuing this year, unfortunately, though the markets are reacting with less panic than at the beginning of the crisis last year. Vaccination seems to provide some hope for better containment of the pandemic during the second half of 2021, a hope which is further supported by the expectation for more governmental aid under the upcoming Biden rule in the US.
However, the “art” of money creation to cover suffering economies has added trillions of sovereign debts, mainly in the United States and Europe. It did not really help, though.
Despite slightly improving national economic figures, some industries are close to collapse, and millions of smaller businesses have closed down, perhaps forever.
The burden of those sudden new debts and sharply increasing costs in the social welfare systems, combined with decreasing tax revenues for many years, is driving the interest to commodities, which are seen as “real value”, existing and tangible.
Demand from investors, industry
Silver is one of those commodities. Around one third of the global silver demand comes from investors, while two thirds are needed for industrial applications, such as semiconductors and solders in electronics, solar panels, water purification, batteries, and LED lighting as well as jewellery. A recovery of global industries, once the corona crisis can be better contained due to successful vaccination programmes, will support the silver price.
This view is also supported by the Head of Commodity Strategy at Saxo Bank, Ole Hansen, who is bullish for the silver price in 2021:
“Silver has always been a wily beast for investors due to its dual precious metal/industrial metal uses, and 2021 sees silver rising on both… Turbocharging the rise in the silver price in 2021, even relative to gold, is the rapidly rising demand for silver in industrial applications, especially those driving the green transformation such as photovoltaic cells used in solar panel production.”
The Covid-19 crisis has increased the awareness for a greener and healthier world, for the reduction of CO2 emissions and for sustainable energy production. Many governments do not get tired from repeating that any state aid to companies suffering from the pandemic shall be provided only in connection with cleaner ways of doing business.
The government of France successfully forced Air France to reduce its CO2 output as a condition to receive billions of aids.
The European Union announced that it will no longer subsidise any projects that are related to energy production by combustion, which is, on another note, a big blow for the gas exploitation dreams of Cyprus.
Clean energy, solar panels
As clean energy is on the top of global agendas, there will be an increasing demand for silver, as the metal is an important component of solar panels. Although the amount of silver needed in solar panels has been decreased with advancing technologies, aiming for more cost-effective products, the total quantity of silver delivered to the solar panel industry continues to grow.
The research firm CRU expects solar power generation to nearly double by 2025, and the industry’s need for silver rising to 81 million ounces by 2030.
“Silver is our preferred play on rising investment in solar panels,” said Bank of America’s experts in a recent outlook report. The bank made headlines two months ago when it dropped its forecast that gold will hit $3,000 this year, but it remains overweight in silver.
While Bank of America believes silver will break through $31 in 2021, it expects silver to trade at an average of $29.13 an ounce this year.
The Canadian CIBC bank sees silver prices averaging around $32 a troy ounce in 2021.
“Even though the commodity has already performed well year-to-date, this metal has the potential to provide investors with even more torque given the relatively smaller market for silver vs. gold,” said Anita Soni, author of CIBC’s precious metals outlook 2021.
This outlook is also shared by Metal Focus, the U.K.-based research firm, whose analysts see silver prices pushing well above $30 an ounce in 2021.
“The recovery in silver industrial application is expected to outpace global GDP growth, with offtake in 2021 almost matching the 2019 total. Support will emerge from a range of end-uses, including photovoltaics and automotive demand,” said Neil Meader, Managing Director of Gold and Silver at Metal Focus, who has over 28 years’ experience as a commodity analyst.
Analysts at Metals Focus said a few weeks ago that further monetary stimuli are the main reason behind their forecast that the silver price will break through the $30 mark during 2021: “Almost irrespective of the outcome of the US election, fresh large-scale fiscal and monetary stimuli seem inevitable, given an uncertain economic recovery and still high Covid-19 cases.
“The same may apply to Europe where record infections and new lockdown measures have also cast doubts about the solidity of the anticipated economic recovery. The case for silver (and gold investment) will therefore remain strong.”
The U.K. metal advisors expect that the annual average price of silver will be rising by 40% this year.
Stefan Nolte is Director of Liemeta ME Ltd, a provider of physical storage of precious metals at its prime location in Liechtenstein as well as trade services of precious metals, mainly gold, silver, platinum, and palladium.