In the latest episode of the Money Metals Midweek Memo, host Mike Maharrey dives deep into the silver market’s outlook, highlighting increasing industrial demand, supply shortages, and bullish projections from mainstream analysts.
Silver’s 2024 Performance and Market Sentiment
Despite a common perception that silver has underperformed, silver prices rose 20.5% in 2024, making it one of the best-performing asset classes of the year. While gold has repeatedly set record highs, silver remains around $20 below its all-time high, reinforcing the belief that it is a laggard.
However, many experts argue that silver is undervalued relative to its supply and demand fundamentals. Maharrey points to growing mainstream bullish sentiment, with Saxo Bank’s head of commodity strategy, Ole Hansen, predicting a 30% price increase in 2025 due to silver’s dual role as an industrial and monetary metal.
The Driving Force: Industrial Demand for Silver
The industrial demand for silver has surged, particularly in the green energy sector, with solar energy leading the charge. Each solar panel uses about 20 grams (0.64 oz) of silver, and with 100 million ounces of silver consumed by the solar industry in 2023, the sector accounted for 14% of total silver demand.
A study from Australia projects that solar energy alone could consume up to 95% of total silver demand within the next 10–15 years. While this might be an aggressive estimate, Maharrey emphasizes that demand from China and India, the largest consumers of solar energy, will remain strong regardless of U.S. political shifts.
Why Substitutes for Silver Are Unlikely
Analysts once assumed that silver’s use in solar panels would decrease as alternative materials were developed. However, a 2020 Saxo Bank report debunked this assumption, noting that:
"Potential substitute metals cannot match silver in terms of energy output per solar panel. Non-silver PVs tend to be less reliable and have shorter lifespans."
Newer high-efficiency solar panels actually require 20–120% more silver than previous models.
AI and High-Performance Computing: A New Source of Demand
Beyond solar energy, Artificial Intelligence (AI) and high-performance computing (HPC) are also driving silver demand. AI chips and data centers require highly conductive materials like silver to improve processing speed, electrical efficiency, and cooling performance.
Maharrey points out that the electrification of industries and the expansion of AI-driven technologies will continue pushing silver demand upward for years to come.
Silver’s Persistent Supply Deficit
While demand surges, silver supply continues to shrink. The Silver Institute projects that industrial demand will exceed 700 million ounces in 2024, setting a record. At the same time, silver mine production has been declining since 2016.
Key supply concerns include:
- Silver’s fourth consecutive supply deficit in 2024, is expected to be around 215 million ounces, the second-largest deficit on record.
- Declining mine output: Only 20–30% of silver comes from primary silver mines, while 70–80% is a byproduct of other metals like copper and zinc. This means silver mining does not rapidly respond to price increases the way gold mining does.
With fewer new silver mines opening, Metals Focus forecasts that silver prices will break all-time records in the next five years, potentially exceeding $50 per ounce.
Investment Demand: A Contrarian Bullish Indicator
While industrial demand for silver is soaring, investment demand has lagged, particularly in the United States and Europe. The Silver Institute expects physical investment in silver (coins and bars) to decline 15% in 2024, reaching a four-year low of 208 million ounces.
However, contrarian analysts see this as bullish. Jesse Colombo, available on Money Metals Exchange, explains:
"The core idea behind this approach is that the crowd tends to be wrong at major market turning points. As the market peaks, the crowd becomes excessively bullish. At market bottoms, they become overly bearish."
Since Western investors are currently bearish on silver, contrarians argue this is a sign of an upcoming price breakout.
The Gold-Silver Ratio: A Historic Buying Opportunity
Another key indicator is the gold-silver ratio, which currently sits at over 90:1. Historically when this ratio exceeds 80:1, silver has often experienced sharp price increases to correct the imbalance.
For reference:
- The last time the ratio was this high was during the COVID-19 crisis in 2020 when it reached 123:1 before plummeting to 60:1 as silver prices surged.
- Historically, the modern-era average for the gold-silver ratio is between 40:1 and 60:1, meaning silver is heavily undervalued at current levels.
What Comes Next?
Maharrey emphasizes that while predicting exact timelines is difficult, the fundamental indicators all point toward a major silver rally. With:
- Surging industrial demand (solar, AI, electrification)
- Shrinking supply and production constraints
- A historically high gold-silver ratio
- Growing mainstream bullish sentiment
… all signs indicate that silver remains significantly undervalued and may be on the verge of a breakout.
Time to Act: Silver on Sale
With silver prices still hovering around $30 per ounce, Maharrey concludes:
“When something is on sale, you shop for it.”
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