The Silver Institute projects a record-setting global industrial demand for silver in 2023, reaching 632 million ounces. This surge is driven by investments in photovoltaics, power grid and 5G networks, growth in consumer electronics, and increased vehicle production. The industrial demand is expected to offset lower physical investment demand, which is projected to drop by 21% to 263 million ounces, primarily due to reduced silver investment in India and Germany.
Despite an overall year-on-year decline in investment demand, it remains at a historically high level globally, with strong investment sentiment in North America offsetting the decline in India and Germany. Investment in paper silver also decreased in 2023, with record outflows for Exchange Traded Funds (ETFs) for the second straight year due to monetary tightening and higher yields.
Total silver demand is expected to drop by about 10% to 1.14 billion ounces in 2023, but the Silver Institute notes that it remains historically elevated, coming in as the second-highest level in history. On the supply side, global mined silver is anticipated to fall by 2% year-on-year to 820 million ounces, driven by lower output from operations in Mexico and Peru. The combination of historically high demand and falling mine output is projected to create a market deficit of 140 million ounces in 2023.
The Silver Institute suggests that given the current macroeconomic environment and the supply and demand dynamics, silver appears to be significantly undervalued at $23 to $25 an ounce. It highlights the potential for a third consecutive annual deficit in 2023 and notes the increasing demand for silver in the solar power industry, projecting that silver may become more attractive as a monetary metal alongside gold. The silver-gold ratio is currently over 87-1, presenting an opportunity for investors as historical averages range between 40:1 and 50:1.
