Silver prices could be headed for an “explosive” rise in 2024 if global supply continues to lag demand and the Federal Reserve moves ahead with its plans to cut interest rates in the coming months, according to metals market analysts.
While silver has underperformed gold this year, with prices hitting record highs this year, the opportunity to snap up silver at bargain prices could be short-lived.
“The window to buy silver in the low to mid-$20s is coming to an end,” said Peter Spina, president of silver news and information provider SilverSeek.com.
It's likely that silver prices will rise toward major technical resistance at $30 an ounce next year, he told MarketWatch, adding that he “fully” believes the price barrier will fall .
On Thursday, the most active March silver futures contract SIH24 SI00 on the Comex closed at $24.39 an ounce, with prices rising 6.4% for the session to pare annual losses. It has traded 1.4% higher year to date, according to Dow Jones Market Data.
Gold futures GCG24 GC00, meanwhile, closed Thursday at $2,044.90, up 2.4% for the session, up 12% for the year so far, and near their record close of $2,089.70 on March 1 December traded.
The underperformance of silver
In general, silver moves much more with gold than with other commodities like copper or oil, and silver's moves tend to be larger as a percentage than gold's, said Keith Weiner, CEO of Monetary Metals.
That's what happened with silver's recent move lower, he said. Silver posted its eighth consecutive session loss on Wednesday, marking its longest losing streak in just over a year and a half.
Both gold and silver have experienced similar trends in terms of “lack of investment demand” due to rising interest rates, said Chris Mancini, research analyst at Gabelli Funds. This was primarily manifested in outflows from both gold- and silver-backed exchange-traded funds, he said.
The iShares Silver Trust SLV,
The company has 441.47 million ounces of silver and has posted a net asset value return of minus 0.3% since Thursday.
However, gold has benefited this year from a surge in demand from central banks, which are buying gold to “diversify out of the U.S. dollar,” Mancini said.
Read: Global gold purchases by central banks hit a record high in the first nine months of the year
See also: Gold just hit a record high. Is it too late for investors to add it to portfolios?
Solid economic performance this year around the world and particularly in the U.S. led to higher short-term interest rates from the Fed and other central banks and the “subsequent decline in investor demand for gold and silver,” Mancini said.
Global physical investment demand for silver is expected to reach 263 million ounces this year, down 21% from 333 million ounces in 2022, the Silver Institute reported in mid-November, citing data from Metals Focus.
Change of course
Silver prices rebounded late Wednesday afternoon after the Federal Reserve announced three interest rate cuts in 2024, instead of the two rate cuts forecast in September.
This represented quite a change as silver prices had been trading lower in the year prior to this rally.
The prospect of an end to the Fed's rate-hiking cycle weakened the US dollar and Treasury yields, providing support for dollar-denominated gold prices – and therefore silver.
Read: Gold futures are approaching record highs in one fell swoop
The Fed's decision “unsettled fears about industrial demand,” removing temporary pressures caused by those fears, Spina said.
Fed Chairman Jerome Powell said Wednesday that central bank officials are beginning to discuss when to cut interest rates.
New York Federal Reserve President John Williams appeared to walk back those comments, telling CNBC on Friday that Fed officials aren't really talking about rate cuts at this time.
At some point, the Fed will have to change its course on interest rates, Monetary Metals' Weiner said.
“If they do that, it will be a catalyst for higher gold and silver prices, “maybe even much higher,” he said. “We are now in a secular bull market – this is not the bear market of 2012-2018.”
Bullish fundamentals
Meanwhile, global silver supply is expected to fall short of demand for the third consecutive year this year.
“The fundamentals for the silver market are extremely positive,” Spina said, especially given the ongoing structural deficit in silver.
The Silver Institute report showed that global industrial demand for silver is expected to rise 8% this year to a record 632 million ounces, driven by investments in photovoltaics – used in solar technology – power grids and 5G. Networks as well as growth in consumer electronics and increasing vehicle production.
The report showed that global silver supply in 2023 is estimated to be around 1 billion ounces, while total demand is at a larger 1.143 billion ounces. Metals Focus said it expects the deficit “to persist in the silver market for the foreseeable future.”
“The one final major driver missing from the silver price explosion is investor interest,” Spina said.
Remember that silver is a “noble green metal,” he said. It is benefiting from strong growth in mandated demand for green energy, which will “continue to drive industrial demand to new records.”
Meanwhile, silver supplies are being “depleted” as a structural deficit in physical silver competes for remaining supplies, Spina said.
He expects silver prices to “challenge $30 an ounce again” in the coming months, if not sooner.
Pay attention to the first direction of gold prices, he said. “If gold prices hit record highs in the coming weeks, silver will be in perfect conditions to test $30, with a likely breakout to $50 [and ounce] coming in 2024.”