Lear Capital on the Key Factors Fueling the Demand for Silver Right Now
Although gold may have traditionally been a more recognizable investment asset, a number of elements are currently driving the demand for silver sky-high, according to Kevin DeMeritt, founder and chairman of Los Angeles-based gold and precious metals firm Lear Capital.
“Throughout 5,000 years’ worth of history, gold has been some form of money — and today, central banks don’t hold silver; they hold gold,” DeMeritt says. “So gold just gets more attention from that aspect. But the advantages of silver, from our perspective, are starting to outweigh gold.”
“Silver has become a highly in-demand asset; yet the available supply hasn’t vastly increased,” says DeMeritt. “Numerous investors view silver as a hedge against inflation because it has tended to increase in price during periods of high inflation.”
As with other precious metals, there’s only so much in existence and additional silver can’t be created. The myriad uses for the precious metal, however, have continued to expand. As a largely industrial metal, silver has numerous applications ranging from mirrors to flatware, printed circuits, and other electronic items.
“Silver is also needed for industrial and clean energy processes — which could help drive its price to more than $30 an ounce this year,” explains DeMeritt.
The Energy’s Sector Interest in the Precious Metal
Silver’s use in green energy production is a particular supply pressure point.
With the highest amount of electrical and thermal conductivity, silver has become a key component in solar panels; approximately 100 million ounces of silver are estimated to be consumed annually through the use of a silver paste within solar cells that directs electrons either into storage or consumption, according to Lear Capital.
Within the past year, the demand for silver for use in photovoltaics climbed 15% higher, reaching 140.3 million ounces, and is predicted to rise an additional 28% to 161.1 million ounces this year.
A BMO Capital Markets projection places the solar industry’s yearly silver consumption at about a 185 million ounce level within a decade, which would be an 85% growth from today’s use.
If the solar market-related demand eventually meets the expected need for 500 million ounces a year by 2050, the current supply of silver will likely be more constrained in the future — potentially raising prices for the precious metal even higher.
“You really can’t have solar without some silver in those panels,” Kevin DeMeritt says. “Because there’s this drive for green energy around the world, solar has grown, and so has the demand for silver.”
Electric cars, too — which doubled in sales from 2021 to 2022 — rely on silver as part of their battery; each vehicle utilizes between 25 and 50 grams. Hybrid models also require silver — roughly 18 to 34 grams. Collectively, the auto industry uses 55 million ounces each year; this amount is expected to swell to 90 million by 2025.
A Sunny Future Forecast for Silver
Silver’s various industrial applications make it likely to remain in high demand in the years to come, even if some of its other uses trend downward. The Silver Institute, a nonprofit association comprising members who work in the silver industry, has forecast the demand for silver will hit an all-time high in 2023, equating to a need for 576.4 ounces — a 4% increase from 2022, when the demand for silver grew by 5%.
Influenced by consumer electronic sector gains, vehicle production and construction industry increases, and other economic factors, industrial demand for silver is expected to eventually outpace overall gross domestic product growth, according to the Silver Institute — adding to silver’s investment potential.
“You have batteries that have silver in it, solar that has silver in it; the industrial uses are just going through the roof,” Kevin DeMeritt says. “You also have demand from other countries that are looking now past gold and starting to look at silver, as well.”
Inflation is another relevant aspect. Silver has historically performed well during periods of high inflation. In 1980, for example, as the U.S. navigated a challenging period when inflation reached more than 14%, gold’s price rose 147%, according to a Lear Capital analysis — and silver’s price increased even more, rising 557%.
What Today’s Economic Climate Can Mean for Investors
The inflation rate in the U.S. is still notably above the Federal Reserve’s desired 2% target, despite months of rate increases intended to bring it down. This is due in part to continued interest in silver to help offset inflation’s effect on other investments, and Kevin DeMeritt says that in 2023, prices for the precious metal might reach a level that hasn’t been seen for nine years.
“You have the industrial side of the market that’s starting to increase, and then you have the investment side of the market that’s also starting to look very, very good. Numerous investors view silver as a hedge against inflation because it has tended to increase in price during periods of high inflation.”
A number of economists have also predicted a recession could occur this year, due to factors like recent yield curve inversions, which have occurred before every U.S. recession since 1960. In January, The Wall Street Journal reported that two-thirds of the economists from more than 20 large financial institutions with which the Federal Reserve works anticipate the U.S. will enter into a recession in 2023.
Investors who hope to take advantage of any future increases in silver’s value may want to consider adding the physical precious metal asset to their portfolio at its current price.
“The last time we had a recession, the price of silver went up about 350% [and] hit $47 an ounce,” Kevin DeMeritt says. “We trade at around $22 today. Silver was up about 20% in [recent months], and that’s because of the investment demand. We’re starting to see [it] pick up; silver will get more headlines throughout next year as we go into a recession.”
