Silver marks a new 14-year high with prices above $44 per ounce. While many investors are eyeing the record level of $50, the silver specialists at Sprott Asset Management also see the rally as just beginning – with more than $6 of further upside potential.
In an interview with Kitco News, the analysts point to palladium as a blueprint: In early 2016, palladium was around $500 per ounce, in May 2021 it was already over $3,000, and after turbulent months, it reached $3,425 in March 2022. In six years, the increase totaled almost 600% – a benchmark that puts silver’s previous annual performance of 52% into perspective.
Market Shortage as Driver for Silver
The driver then, as now, was a significant market shortage. Between 2012 and 2016, palladium demand rose with a stagnating supply; prices only reacted in 2016 when investors recognized the shortage. Although above-ground silver stocks are difficult to quantify, five years of significant deficits are taking effect. During this period, the supply gap totaled around 800 million ounces; a deficit of around 187 million ounces is expected for this year.
According to Sprott, the situation is unlikely to change any time soon: Mine production is not keeping pace with demand, even though silver is essential for the global economy. The energy transition in particular is providing tailwind – photovoltaics require silver, and solar energy has established itself as a cost-effective addition to the energy mix. A lot of demand comes from emerging markets, especially India. However, the largest consumer remains the electronics industry. Since technology investments dominate CapEx today, there is a good chance that the imbalance between supply and demand will remain.
Even rising inventories would hardly compensate for the fragmentation of global supply chains: More and more countries are switching from the “just-in-time” to the “just-in-case” model with domestic stocks – at a corresponding cost.
