Not just gold, the energy transition makes silver shine

Silver is experiencing a moment of glory: demand from the industry solar panels and artificial intelligence data centers has pushed the spot price up more than 20% this year, compared with gold’s 13% gain. Demand is set to increase, and the drop in supplies has created the second-largest silver deficit in 20 years, according to the Silver Institute. Will silver overshadow gold as the leading precious metal? This is the question he answers Albert Chu, portfolio manager, and Angus Poland, analyst, natural resources strategies at Man Group.

Not just gold

Silver – explains the expert – “has many features characteristics of gold: it has been a store of value for thousands of years, has a close relationship with real interest rates and has interesting properties for industrial purposes. However, silver is much more abundant than gold, and underground silver mines have grades (concentration within the ore) over 100 times higher than gold mines. That said, it is still a rare metal and therefore costs almost a million dollars a ton.

While silver is a recognized store of value, it is not usually the first investment choice in the event of geopolitical or economic shocks: gold attracts more flows as a safe haven asset, doing better than silver in times of crisis. However, when conditions stabilize, investors start to look to ‘poor man’s gold’ and silver rises more.”

The energy transition makes silver shine

Central banks favor gold due to its price density, which is almost 150 times higher than that of silver. This preference has supported gold prices in recent years, an advantage that silver has not directly enjoyed.

The industrial sparkle of silver

Even though silver is not the metal of choice for central banks, it is growing industrially. In fact, silver boasts the highest electrical and thermal conductivity of all metals. This characteristic, combined with its relative abundance, makes it the primary metal for industrial uses – 54% of silver is used in industrial applications, compared to 10% for gold. This industrial demand can drive silver prices higher during periods of stable interest rates, but it can also drive silver prices lower during periods of low activity.

In particular, silver is a metal in the center din the energy transition. As we move from hydrocarbons to electricity, there is growing demand for circuits, switches, and motors, all of which use silver. This demand is expected to expand with the rise of electric vehicles and AI data centers.

Use silver’s most significant ending is in solar panels, each of which requires 10-20 grams of silver per kilowatt. Bloomberg estimates that more than 500 gigawatts of photovoltaic (PV) units will be built this year, requiring about 250 million ounces of silver, or 30% of global supply. Demand is growing rapidly, with PV installations expected to increase 67% between 2022 and 2023 alone.

Declining supply and changing price dynamics

The way silver prices are priced is also evolving, he explains Chu emphasizing that historically they were the real rates determine prices, given silver’s role as a store of value. However, the balance between supply and demand is now becoming much more critical.

Silver supply has reached peaked in 2016 and has stagnated since then due to a lack of investment in a low-price environment and stricter environmental, social, and governance (ESG) requirements that have discouraged new mining. The Silver Institute forecasts a 1% decline in total silver supply in 2024, leading to a projected market deficit of 215.3 million ounces, the second largest in more than 20 years.

This deficit, determined by the energy transition, “represents the advantage of silver compared to the best qualities of gold as to store of value and safe haven“, concludes the analyst.