Silver is Seeing Challenges but Has Long-Term Game

Close up of Canadian fine silver coins

By: Bart Melek

Jul. 21, 2023 - 2 minutes

After materially outperforming gold for much of late-2020 to mid-2021 and late 2022, silver has underwhelmed for about a year now. (1) Last year's decline occurred despite a record demand driven by a 5% increase in industrial demand, a 22% jump in physical investments, a 29% jump in jewelry uptake and an 80% surge in silverware usage of the metal. The consequent record deficit of 238 million oz was insufficient to prevent the price decline in 2022.

The silver market is set to be looser than the projected 110Moz annual deficit this year suggests following concerns surrounding higher-for-longer interest rates, a lack of speculative appetite, less physical demand amid Chinese economic weakness and a pending U.S. recession suggest. Elevated carry costs and lease rates should see the metal pushed onto the market, reducing tightness in primary markets. This will be augmented by muted physical investment and industrial demand as a U.S. recession draws nearer and Chinese economic weakness continues. Consequently, silver could trend low for much of the next three months.

As it becomes clear that the Fed and other central banks will begin pivoting to a more dovish monetary policy stance in the early months of 2024, boosting the prospects for an economic recovery on the horizon, the white metal may set its sights higher in the final days 2023. Lower interest rates, firmer physical investment and recovering industrial demand will work together to tighten supply-demand fundamentals. Our price projections are at the market consensus for the next three months, but they are above the projected average for the last quarter of the year.

In the very long-term, silver may trade significantly higher and could increasingly decouple from gold, as its ties to the interest/lease rate environment weaken. As the global electrification transformation takes root, demand from solar panels and auto electronics is set to continue outpacing supply. This could drain inventories making it difficult to balance a market left short by poor growth from mining and recycling.

  1. Bloomberg, TD Securities Commodity Strategy

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Portrait of Bart Melek

Bart Melek
Global Head of Commodity Markets Strategy, TD Securities

Portrait of Bart Melek

Bart Melek
Global Head of Commodity Markets Strategy, TD Securities

Portrait of Bart Melek

Bart Melek
Global Head of Commodity Markets Strategy, TD Securities

Bart provides commentary on commodity and various other financial markets and how they relate to the sectoral and macroeconomic outlook. Bart is a sought after media source for many leading print publications and business television programs. His forecasts are also part of the global consensus. Bart joined TD Securities in 2011 and has over 20 years of experience analyzing global precious metals, base metals, energy, and financial markets, as well as North American and global economies.

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