Resource Industry’s Turning Point Is Approaching, Especially Silver

Resource Industry’s Turning Point Is Approaching, Especially Silver
Published on: February 8, 2024

Over the past 10 years, retail investors have shown little interest in the resource industry, and mining stocks have been generally undervalued. However, with the impending interest rate hikes, the global macroeconomic environment is moving towards a more favorable direction for the resource industry, and a turning point for commodities may be on the horizon, especially for silver.

In addition to the positive economic environment, another indicator suggests that the turning point for the resource industry is approaching. A survey by Bank of America (NYSE: BAC) shows that institutional investment in commodities has reached a historical low, with fund managers’ relative holdings of commodities to bonds reaching the lowest point since March 2009; they are currently significantly underweight.

Of course, the most direct factor determining the price of silver is supply and demand. The current supply and demand of the silver market provide support for the silver price, with demand reaching historically high levels and mine supply shrinking.

Data from the Silver Institute shows that last year’s silver supply shrank by approximately 2%, or 18 million ounces, with the most significant decrease in Latin America. For example, the supply in Mexico, the world’s largest silver-producing country, fell by 12% last year, largely due to a 4-month strike at Newmont Corporation’s (TSX: NGT) (NYSE: NEM) Peñasquito mine. Meanwhile, mining supply in Peru has also shrunk over the past 6-7 years.

There are currently few new silver projects in development, and new mines are unlikely to reverse the current supply and demand pattern in the silver market. Furthermore, an interesting point to note is that 75% of the world’s silver is produced as a by-product of gold, copper, lead, and zinc mining. This means that if the extraction of these base metals encounters obstacles, silver will also be affected.

According to estimates by the Silver Institute, the silver deficit over the past 3 years is approximately 500 million ounces.

On the demand side, physical silver investment and demand for jewelry and silverware declined in 2023, but industrial demand will be the main driver of the rise in silver prices in 2024. At the beginning of last year, the Silver Institute predicted a 4% increase in industrial demand for silver in 2023, but by November, it was revised upwards to 8%, reaching a record 632 million ounces.

If investment demand also picks up, the probability of silver price increase will be higher.

In addition to traditional industrial demand, the transition to renewable energy will be a key factor in observing the long-term trend of silver prices. In November last year, the Silver Institute estimated that solar energy would account for 30% of industrial silver demand in 2023, up from approximately 25% the previous year. In addition, compared to traditional technologies, solar technologies such as TOPCon and HJT use more silver. With the further popularization of these new technologies, even if sales remain stable, the demand for silver from this industry will continue to grow.

Clean Energy Mining Precious Metals Silver