Silver recovered from a two-year low on the escalation of geopolitical tensions, recession worries in key economies, and seasonal demand. Though the post-pandemic industrial demand helped commodity prices to stream higher, silver prices were reeling under the bearish grip.
Silver was the worst performer among precious metals in 2022. The metal has lost more than 13 percent since January, weighed down by a more firm US currency, rising interest rates, and feeble industrial demand.
Usually, gold and silver move together as both are considered safe havens during economic and political uncertainties. However, in the past few years silver has traded flatline, even though gold prices rallied to record highs. This has reduced the appetite for silver, especially from professional investors.
Historically, silver prices are extremely volatile compared to other precious metals. This is because of a smaller market, lower market volatility, and fluctuations in industrial and investment demand.
In the international market silver hit an all-time high of $49 an ounce in 2011. But, due to weak fundamentals, it sunk to a low of $11 by March 2020. It again went up to $30 an ounce but lost momentum later. Currently, the ongoing geopolitical and economic uncertainties have reignited the metal’s safe-haven demand.
In the domestic market silver prices are almost held steady. A weak domestic currency and prevalent demand for silverware and ornaments in the country supported the prices. In India, while making utensils and jewelry, this metal is often considered a substitute for gold.
Silver is an integral part of many green technologies. Since countries across the globe are moving toward a greener economy, investments in decarbonization and electrification projects continued to grow. It is largely used in renewable energy solutions, especially in photovoltaic industries. Silver loadings are high for the electrification of electric vehicles as well. These new and emerging applications are offering structural support to the metal.
As per Silver Institute data, industrial demand for silver posted an increase of 9 percent last year. It was the highest level since 2010. The resumption of industrial operations and re-opening of businesses after the pandemic-related lockdown largely assisted the sentiment. Coin and bar purchases contributed a large chunk of the volume followed by industrial demand.
Silver output has also increased by 5.3 percent last year and it was the biggest annual rise in production since 2013. Recycling and mining activities have improved significantly from the pandemic-related supply disruption in 2020.
However, contrasting forces continue to dominate the market outlook. A shortfall in investment and industrial demand dominated the trend of metal.
Factors like central bank policies, geopolitical tensions, and currency movements are less likely to have an impact on investment demand. Meanwhile, the new and emerging industry demand perhaps could offer stiff support to prices.
On the domestic front, a weak INR and high duties are likely to back prices. The upcoming festive and wedding seasons may bring some of the shine to the metal. Buying precious metals is considered auspicious during key Indian festivals. Demand for silver jewelry is expected to rise over the winter wedding season in the country.
On the price front, overseas prices may edge higher in the near-term, but may face stiff resistance at $27 an ounce. Consistent trades below $16.50 is a sign of liquidation pressure. On the domestic front, silver prices are most likely to stay above Rs 52,000 a kg, and the key upside hurdle is placed at Rs 75,000 a kg.
(The author Hareesh V is Head of Commodities at
)
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)