The silver market in 2022 presented a study in contrasts, with the largest deficit on record coinciding with a lack of interest from institutional investors. This seemingly paradoxical situation is detailed in the 2023 World Silver Survey, which reveals a 2022 silver market deficit of 237.7 million ounces (7,393 tons) — an all-time high.
Investor Attitudes vs. Silver Market Fundamentals
Typically, several factors that are positive for institutional investment, like financial market turmoil and weak GDP growth, negatively impact key demand segments like industrial, jewelry, and silverware. 2022 was no different. While retail investors turned to silver to protect their wealth from the effects of rising and persistent inflation, institutional investors were deterred. These institutional investors were faced with rising policy rates from the Federal Reserve, driving US yields higher and exerting downward pressure on silver prices.
Impact on Physical Demand and Supply
This dynamic served to further boost physical demand. Particularly in India, an already strong demand was intensified by low prices, prompting the entire supply chain to replenish its stocks. This came after two years of inventory drawdowns due to the pandemic.
The persistent demand was not the only force at play in 2022. Industrial fabrication, largely due to a buoyant solar industry, bolstered the market and helped offset the effects of investor indifference. However, these demand factors met with lackluster supply gains. Limited organic growth, project delays, and disruptions led to a marginal decline in mine production, while recycling saw minimal increases.
Effect on Silver Prices
Despite such a favorable demand-supply situation, the average silver price in 2022 fell by 14% to $21.73. This fall in prices, largely influenced by institutional investor activity, happened against the backdrop of rising US interest rates. The negative pricing pressure from mid-April to mid-October 2022 also illustrated that silver prices tend to follow professional investor activity more than market fundamentals.
The Silver Market Outlook for 2023
Looking forward, 2023 is expected to mirror much of 2022's trends. The World Silver Survey forecasts another significant deficit, although lower than in 2022, at 142.1 million ounces (4,419 tons). Despite the recent boom in investor demand, institutional investment is predicted to wane as market consensus suggests that the Federal Reserve will maintain its rate policies. The silver market is likely to see prices fall to the low $18.00s by the end of the year, averaging $21.30 for the year, marking a 2% decline.
Silver Supply in 2022: Mine Production and Recycling
The global mine production of silver fell marginally by 0.6% to 822.4 million ounces (25,578 tons), primarily due to a drop in byproduct output from lead/zinc mines in China and Peru. On the other hand, recycling activity rose for the third consecutive year, reaching a 10-year high of 180.6 million ounces (5,618 tons), largely due to increased processing of spent ethylene oxide (EO) catalysts.
Silver Demand in 2022: Industrial, Jewelry, and Investment
Demand for silver saw a notable jump in 2022, with total off-take growing by 18% to reach a record high of 1,242 million ounces (38,643 tons). This was spurred by a robust industrial sector, an increase in jewelry fabrication — particularly in India — and a post-pandemic recovery in exports and domestic sales. Physical investment also reached a new high of 332.9 million ounces (10,356 tons), further emphasizing the strong preference for physical assets in uncertain economic conditions.
Despite the increase in industrial fabrication, China's zero-COVID policies led to intermittent disruptions that somewhat limited global demand. The solar industry, in particular, saw a decline in demand due to these policies, despite the sector’s overall strong growth globally.
Factors Influencing the 2023 Silver Market Forecast
The forecast for 2023 takes into consideration several factors. Expectations of a Federal Reserve rate cut in the second half of the year might put upward pressure on silver prices, but this will likely be offset by weaker physical investment demand due to better economic prospects.
The global silver market is also expected to experience some supply constraints due to continued disruptions in mine production and minimal increases in recycling. These factors, combined with an expected decrease in industrial fabrication, especially in the solar industry, are likely to result in another significant deficit.
Emerging Trends and Challenges
Emerging trends such as the growing digital economy and the increasing popularity of silver in the technology sector may influence the silver market in the coming years. The demand for silver in electric vehicles (EVs), 5G technology, and other high-tech applications are expected to rise, further straining the supply-demand balance.
In addition, environmental challenges related to mining and the recycling of silver, as well as potential regulatory changes, could pose challenges for the silver market in 2023 and beyond. It will be critical for stakeholders in the silver market to monitor these trends closely and adapt accordingly.
In conclusion, 2022 was a year of contradictions for the silver market, with record deficits contrasting with a lack of investor interest and falling prices. The silver market outlook for 2023 indicates continued complexities and dynamics. Understanding these factors will be crucial for anyone involved in silver investment, as they navigate the market's opportunities and challenges. However, as 2022 demonstrated, the silver market can often defy conventional wisdom and exhibit unique behaviors that offer insights for future market developments.