The silver spot price has stabilised at the $22 an ounce level. A sharp dip at the end of September had brought the precious metal down to the $21 range for the first time since July 2020.
Precious metal markets have defied expectations of a price rally in response to rising inflation and macroeconomic uncertainty, as central banks, including the US Federal Reserve (Fed), have indicated they would ease fiscal stimulus and begin to raise interest rates next year. A strengthening US dollar, measured by the DXY Index, has added further downward pressure.
What does this mean for the metal? What will the silver expected price in 2022 and beyond look like?
In this article, we look at the market’s recent performance, as well as the latest silver predictions from analysts and forecasters.
Silver struggles despite uncertain macro backdrop
The silver price trend turned sharply lower in June in response to bearish comments from the Fed. Investors tend to increase their exposure to silver and gold when interest rates are low and inflation high to protect the value of their money from erosion and a lack of interest payments. However, the prospect of inflation being transitory and interest rates rising has seen investor interest wane.
Silver was a “notable lagger to gold most of the summer”, with the gold-silver ratio rising from 67 to 77, noted MKS-PAMP analyst Nicky Shiels in a recent outlook report. The ratio refers to the number of ounces of silver needed to buy one ounce of gold. Silver “missed the reflation trade and has lagged the strong repricing in base metals/copper due to physical overhang”.
Shiels noted that the silver markets remain structurally oversupplied because of a mix of primary and by-product output from mines. Fundamental surpluses excluding investment demand have increased since 2018. But disruptions to the supply chain and strong regional industrial demand for high-grade silver have kept physical prices tight. Demand for silver coins from retail investors is on track for a five-year high. However, traders and investors have sold 120 million ounces of silver so far this year – on holdings of around one billion ounces.
Silver’s 14.5% year-to-date fall indicates that physical demand is not enough to absorb the overhang in supply.
The company’s silver production increased by 1% from the previous quarter to 3.3 million ounces.
Silver stocks held at the LBMA fell by 0.2% in September to 36,486 tonnes, valued at $25.2bn and equivalent to approximately 1.2 million silver bars. The decline indicated that investors were selling stocks.
Falling back on negative silver price news, Ole Hansen, head of commodity strategy at Dutch bank Saxo, wrote on 11 October:
The US personal consumption expenditure index, a measure of prices that people pay for goods and services, rose by 4.3% year on year in August, the largest increase since 1991. The Fed uses the index to gauge inflation. The data, released on 1 October, provided support to the silver price.
Silver dropped from $22.47 on 28 September to $21.49 on 29 September, then moved back up to $22.05 on 30 September and $22.54 on 1 October. It has since traded between $22.54 and $22.71.
The JP Morgan global manufacturing purchasing managers’ index (PMI), which was also released on 1 October, was unchanged for September at the six-month low of 54.1 recorded in August. However, that indicated the 15th consecutive month of expansion, as the growth in output accelerated for the first time in five months.
Silver is used in a range of industrial applications, from solar panels, electronics and electric vehicles to medical devices, water purifiers and wood preservatives. With industrial consumption accounting for around half of the world’s annual silver demand, industrial activity has an impact on silver prices.
As always, it is vital to keep in mind that past performance is not an indicator of future returns.
So, will the silver price rise or drop heading into next year?
Silver price forecast: what’s next for the precious metal?
When considering the market for silver in the future, analysts continue to balance expectations that inflation could support the price against monetary policy that could continue to exert downward pressure.
Technical analysis from Zaner on 12 October showed that “we see the path of least resistance pointing down in gold and silver. First and foremost among the bearish forces is the lack of responsiveness to classic bullish forces like macroeconomic uncertainty and inflation… consolidation low support in silver is seen at $22.38 and then again down at $22.18. In order to turn the tide to the upside in the silver market requires a rally above a seven month old downtrend channel resistance line which comes in today at $23.39.”
Analysts at Capital Economics are bearish on the long-term silver forecast. They wrote in a recent commentary:
But analysts at Australian bank ANZ predict silver will average above $24 into the second half of 2022. They wrote in their monthly gold and silver outlook: “The Fed has signalled tapering and rate hikes are around the corner. Still, we believe negative real yields and inflation expectations should support investment demand. The USD is expected to remain weak, as other central banks will be ahead of the Fed in their tapering and rate hikes.”
Shiels at MKS PAMP views the silver market as “fundamentally oversupplied, but attractive as a cheap high beta gold proxy with energy transition ‘booster’”.
The analyst noted that its “unique properties imply silver will have a vital role in enabling the clean energy transition, spanning generation, storage and consumption (e.g.: ranging from silver oxide batteries, solar panels, BEVs, to growth in 5G networks).”
Shiels has a base case average forecast of $28 an ounce for the silver value in 2022, up from $26 an ounce in 2022, with the rise ranging between a “new cyclical floor post Covid QE” of $22.50 and the retail demand peak of $30 an ounce seen earlier this year.
The bullish case based on strong physical and investment demand along with supply chain risk puts the price at around $35 an ounce, while the bearish case of higher interest rates and a stronger dollar would see the price drop to around $15 an ounce.
The silver price prediction from algorithm-based forecasting site WalletInvestor suggests the metal could end 2021 at $23.53 an ounce, 2022 at $27.61, 2023 at $31.69, 2024 at $35.95 and 2025 at $40.09.
When considering analyst commentary or predictions from algorithm-based forecasting services, it’s important to keep in mind that they can and do get their estimates wrong. You should always do your own research, taking care to consider all relevant market conditions.
Follow Capital.com to stay on top of the latest market news, analysis and forecasts, and spot potential trading opportunities.
Silver trades at a large discount to gold because there is more available supply. Gold is less abundant in the ground than silver, so less gold is mined. Around 3,300 tonnes of gold were mined globally in 2019, compared with 27,000 tonnes of silver, according to the US Geological Survey. At the same time, gold is more valued than silver as a form of currency, with investors and central banks favouring gold over silver as a hedge.
The silver price tends to move in tandem with the gold price, in response to macroeconomic factors. Higher interest rates and a stronger US dollar typically weigh on the gold price, while higher inflation, lower interest rates and a weaker dollar provide support. There are more industrial uses for silver than there are for gold, so global industrial production can also influence the silver price.
Some analysts predict that the silver price will remain under pressure in the short term. Looking further ahead, Coin Price Forecast indicates that the metal’s price could exceed $60 per ounce. At the same time, it’s crucial to keep in mind that analysts and algorithm-based forecast services can get their predictions wrong. You should always do your own research.
Whether the silver price will go up depends on the US Federal Reserve’s policy on interest rates, inflation as well as the strength of the US dollar. Supply and demand will also be key drivers, with both mining and industrial production rebounding after disruptions during the Covid-19 pandemic.