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Will silver prices go up in 2021? What should you expect and when

By Nicole Willing

11:18, 21 December 2020

Will silver prices go up in 2021

The white precious metal has seen massive swings in 2020, more than doubling from the lows of the year to reach a seven-year high in August before retreating by 20 per cent. Will the price of silver go up to new highs in 2021, or is the market at the start of a major decline?

The market has been a focus for investors this year, with many asking “will silver go up in value?” as the uncertainty caused by the global coronavirus pandemic has encouraged them to buy into safe-haven assets such as precious metals. With gold reaching a record high over the summer, some turned to silver as a more affordable alternative, resulting in silver outperforming gold in recent months.

This silver price analysis offers an overview of the price moves and looks at the analyst outlook heading into 2021. Scroll down for a video in which David Jones, Capital.com’s chief market strategist, provides a longer-term market update.

Silver holds strong gains after the retreat from seven-year high

The silver price started the year at the $18 per ounce level, and initially fell to $11 per ounce in March during the broad sell-off in financial markets at the start of the Covid-19 crisis. But it had rebounded to $18 per ounce by May as investment demand for silver increased along with gold.

The market then went on to rally above $29 per ounce in August, its highest level in seven years. The price had retreated to $22 per ounce by late November, but has since moved up to $26 per ounce, for a 44 per cent gain year to date.

Silver price chart

According to the Silver Institute’s December update, “the most significant development in the silver investment market this year has been the strength of silver-backed exchange-traded product (ETPs) demand. Investment in silver-backed ETPs surpassed one billion ounces, for the first time, achieving a record high of 1.062 billion ounces”.

“For the full year, Metals Focus forecasts an increase of 350 Moz. on end-2019 levels, compared with last year’s rise of 81.7 million ounces (Moz). Physical investment is expected to surge by 27 per cent to 236.8 Moz. in 2020, which would be a 5-year high.”

Will a recovery in economic activity lift the silver price further in 2021? Unlike the gold market, where the metal is predominantly an investment vehicle, around two-thirds of silver demand comes from physical industrial applications, such as semiconductors and solders in electronics, solar panels, water purification, batteries and LED lighting as well as jewellery.

Global purchasing manufacturer’s index (PMI) data for November showed its fastest expansion in almost a decade, as demand continued to rise following Covid-19 lockdowns and there was a rebound in international trade flows. The JP Morgan global PMI index rose to a 33-month high of 53.7 in November, up from 53 in October and the fifth straight month above the $50 mark that indicates expansion in activity. Growth was led by strong and accelerated increases in output and exports in China and the US. A continued rebound in industrial activity next year is expected to support the silver price.

But will silver go up further in 2021? The bias is still to the upside and analysts remain bullish on the outlook.

Check out this silver analysis video in which Capital.com’s chief market strategist, David Jones, uses technical analysis to suggest a trading position heading into next year.

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Will silver prices go up? Analyst outlook for 2021

Rising industrial demand and continued investment interest are expected to combine with falling production from silver mining companies to support the silver 2021 forecast.

Where is silver heading next

Analysts at Heraeus Precious Metals said in a recent report: “Global silver mine supply is forecast to contract by 6.3 per cent to 780.1 moz [million ounces] this year (source: The Silver Institute), reflecting the impact of operational shutdowns in response to the pandemic. While this is a steeper decline than in previous years, silver mine supply has been dropping since 2016 owing to falling ore grades across major silver operations and a lack of new projects.”

“Despite silver’s rally this year, producers will be hesitant to increase supply on the price alone. The majority of silver is mined as a by-product of other metals (such as gold), which is the main source of revenue for many silver producers. Silver, like gold, typically sees stronger prices from mid-December and into the first quarter. If the trend holds, silver can continue to outperform gold.”

In the meantime, analysts at Australia’s ANZ bank note that “silver has largely outperformed gold for the past two quarters, normalising the gold/silver price ratio to 80x. Investment demand has been the key driver, with ETF holdings rising to a record high of 871moz (+250moz net flows) this year. The retail investment was not left behind, as coins and bars increased by more than 15 per cent. These strong investments have offset weaker fabrication demand amid contracting economic activity. Mine supply contracted by 5 per cent y/y to 795moz, this has also played a role in keeping the market balance tight.”

The analysts commented on their projected silver prices 2021: “While investment has been the key driver this year, we expect industrial and jewellery demand to recover strongly in 2021. Electronics and solar panels will be the major source of incremental demand growth amid rebounding industrial activity. Overall, the constructive fundamentals of silver should sustain investment interest, pushing the price towards $26.5/oz over the next 6-12 months.”

Ole Hansen, the head of the commodity strategy at Saxo Bank, is bullish on the outlook for the silver price in 2021: “Silver has always been a wily beast for investors due to its dual precious metal/industrial metal uses, and 2021 sees silver rising on both... Turbocharging the rise in the silver price in 2021, even relative to gold, is the rapidly rising demand for silver in industrial applications, especially those driving the green transformation such as photovoltaic cells used in solar panel production.”

Hansen added: “In fact, a real silver supply crunch is on the cards in 2021, and it frustrates the full-throttle political support for solar energy investments under a Biden presidency, the European Green Deal, and China’s 2060 carbon-neutral goal, among other initiatives.”

“Another challenge on the supply side for silver is that more than half of mined silver supply is a by-product of zinc, lead and copper mining, making it tough for miners to meet the surging excess proportional demand for silver.”

Analysts at TD Securities noted: “The Fed's lower-for-longer and QE-infinity stance still supports the notion of growth and inflation overshoot narrative which should support gold in the longer-term. However, the immediate impulse for higher prices is rather associated with the start of a CTA buying program in response to strengthening upside momentum, which would be confirmed should prices close north of the $1,875/oz range.”

“In this context, we estimate that algorithmic trend followers would therefore be major contributors to upside flow across precious metals with ongoing buying programs across gold, silver and palladium.”

What is your silver 2021 price prediction? Will the silver price rise higher or fail to resume its 2020’s rally?

Read more: Silver price forecast for 2021 and beyond: a hike up to $100?

Markets in this article

Gold
Gold
2233.43 USD
38.14 +1.740%
Silver
Silver
24.979 USD
0.302 +1.230%

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