Is Silver’s Price Set To Skyrocket As Its Supply Dwindles?


Published: November 24, 2023

Refinement factory at Potosi silver mines, Department of Potosi, Bolivia, South America

In recent years, silver has become a critical material used in electronics, renewable energy applications, and even healthcare, which has caused a sharp spike in demand and, as we’re now seeing, a rapid dip in the supply. Combined with a slowdown in silver mining operations in recent years, the looming silver shortage has many investors questioning whether the precious metal is undervalued.

What Factors Are Driving The Silver Shortage?

Unlike other precious metal shortages in the past, this silver shortage is due to a few different factors, ultimately driven by the perfect storm of record demand and growing supply deficits.

Global Demand For Silver

Silver has moved to the center of global markets in just a few short years, with demand reaching a record high of 1.24 billion ounces in 2021, an impressive 18 percent growth from the previous year. However, the sharp increase in demand is outpacing production rates, resulting in a widespread supply shortfall.

Used in various industrial applications such as solar panels, EV batteries, and medical devices, to name a few, industrial demand alone accounts for more than half of global silver consumption, and there are no signs of it slowing down. In fact, the market was undersupplied by 237.7 million ounces, resulting in a significant gap between supply and demand.

Silver Mining Disruptions & Underperformance

The global silver supply is heavily impacted by how much silver can be mined in a given year.  While it would be highly unlikely that the supply would ever drop to “0”, when the demand for silver outpaces the amount of physical silver mined, a shortage is basically inevitable.

The primary causes of the shortage are year-over-year production shortfalls and increased production costs, especially in Central America. In addition, the rising production costs are not being met by increased prices, making silver production less attractive to mining corporations.

There have also been challenges related to maintaining high-grade deposits in traditional silver mines, which has added to the decrease in production, limiting the overall market supply.

Indian Market Demands

As of 2021, India had a population of roughly 1.4 billion people – roughly four times the size of the population of the United States.  A remarkable increase in silver consumption is predicted for India, with forecasts for the current year indicating an increase of around 80%. India’s burgeoning middle class and deep-rooted cultural and historical affinity for silver contribute to this robust demand.

Silver isn’t only seen as a form of wealth preservation but also has significant religious and cultural significance in India. It’s commonly used for jewelry, utensils, and gifts in religious and cultural ceremonies.

To meet this growing demand, Indian traders are reducing inventory stored in London warehouses. This action exacerbates demand pressures in the silver market, which could lead to unprecedented silver consumption.

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What Could This Mean For The Price Of Silver?

It’s pretty much the first rule of economics that when the supply is low and the demand is high, the price will eventually have to go up. While the current sentiment is that individuals and investors still hold enough silver to meet the demand, this supply can only meet the industrial need for so long. As silver has hovered around $23 – $24 for a while now,  some are speculating a potential price jump in the near future.

Economic Impacts Of A Silver Shortage

The silver shortage highlights the importance of resource management and the need for sustainable mining practices. As with any economic event, the impacts may vary, and strategies to address these challenges will depend on individual circumstances and overall market conditions.

Disruption In Industrial Sectors

A silver shortage could disrupt production processes and set off a chain reaction of problems. For example, the global electric vehicle industry relies on silver as a primary material in its battery and charging technology. A silver shortage could lead to a production slowdown, an increase in product costs, or even a manufacturer’s ability to repair or replace parts if the shortage was bad enough.

These disruptions could also have a domino effect on product timelines. Product launches could be delayed due to silver unavailability, impacting overall market dynamics. Companies highly dependent on silver could suffer a competitive disadvantage, especially if the shortage lasts for an extended period.

Additionally, the search for alternatives could spur innovation as the industry seeks to reduce its dependence on silver. However, finding substitutes that match silver’s unique properties could be complex and costly.

Renewable Energy Advancements

Silver’s conductive properties make it ideal for efficiently converting sunlight into electricity. With the world increasingly embracing solar energy as a sustainable alternative to fossil fuels, the demand for PV cells, and in turn silver, has witnessed considerable growth. The use of silver in photovoltaic panels has increased significantly and is expected to account for about 14% of total silver consumption.

Recycling silver from used PV cells is still a relatively untapped process. Given the long lifespan of solar panels, typically between 20 to 30 years, a significant amount of silver is effectively taken out of circulation for extended periods. This growing demand from the solar industry has profoundly affected the price of silver, as its continued existence depends on expanding solar energy.

These silver disruptions have led to a ripple effect. It’s estimated that approximately 56% of the world’s solar projects slated for 2022 were postponed or canceled as a direct consequence of the shortage.

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Different Ways To Start Investing In Silver

Investing in silver is one of the lower-risk ways to diversify your investment portfolio due to its lower price point and growing demand. As with any investment, it’s important to consider your financial goals, risk tolerance, and investment horizon before deciding on the best way to invest in silver. Consulting a financial advisor or conducting thorough research can help you make an informed investment decision.

Physical Silver

When buying physical silver, some of the more popular options are coins, bars, or rounds. These assets can be purchased from silver dealers, silver IRA companies, some banks, private mints, and online retailers. Coins are attractive to many investors because of their recognition value and varying sizes. Bars and rounds offer better value because they typically have a lower premium than the spot price.

Some investors choose to store at home, providing immediate access to the investment, but it also carries risks such as theft or damage. Alternatively, professional storage facilities or custodians offer a highly secure environment for storing silver. They offer comprehensive security and insurance policies but also charge storage fees that should be factored into the overall cost of the investment.

Silver ETFs

Silver Exchange-Traded Funds (ETFs) offer a flexible way to invest in silver. These funds track the price of silver and are traded on exchanges much like conventional stocks. This makes them a convenient and liquid way to gain exposure to the silver market without being responsible for storing it.

Investors can buy or sell shares of these funds at any time during the trading day, allowing greater control and flexibility. They can be purchased through most brokerage accounts, making them a relatively easy way to add silver shares to an investment portfolio. However, they do have management fees, which should be considered when evaluating the total cost of the investment.

Silver Mining Stocks

When you invest in silver mining stocks, you’re betting on the company’s ability to mine and sell silver profitably. If the company is efficient and silver prices are high, the company can be profitable, and consequently, the stock price can rise. This strategy can lead to significant returns, especially when silver prices are trending upward.

Investing in silver mining stocks, while potentially lucrative, comes with inherent risks. General stock market risks include volatility, economic indicators, and regulatory changes. These factors can affect the stock market’s overall performance and your investment’s value.

Industry-specific risks are specific to the mining sector and the individual company. Mining accidents can shut down production, cause legal problems, and damage the company’s reputation. Production overruns, where mining costs exceed the budget, can also negatively impact the company’s profitability.

Silver mining stocks are also vulnerable to geopolitical risks. These can range from political instability and regulatory changes in countries where mining companies are located to broader global economic conditions that can affect the price of silver.

Silver Futures And Options

Futures contracts are agreements to buy or sell a specific amount of silver at a predetermined price on a specific date in the future. They allow investors to hedge current prices and anticipate future price movements.

Trading in futures contracts can be complex and involves significant risks, including the obligation to honor the contract at expiration and possible substantial losses if silver prices move contrary to expectations. Futures typically involve leverage, which can magnify gains and losses.

Options contracts give investors the right, but not the obligation, to buy or sell a specified amount of silver at a specified price within a specified time frame. Options can be used to hedge against potential price changes or to speculate on future price movements. However, like futures, options trading can be complex and risky and requires a sound knowledge of the silver market and trading strategies.

Invest In A Silver IRA Today

Another notable method of investing in physical silver is through a silver-backed IRA. Like a traditional IRA, a custodian will hold your physical silver investment in an IRS-approved depository. A Precious Metals IRA can offer tax advantages comparable to traditional IRAs. However, it’s important to be aware of the rules and potential penalties associated with early withdrawals and required minimum distributions.

If you’re interested in purchasing silver to store at home or in a tax-advantaged IRA, Noble Gold Investments has many options you can consider. Call us now at (877) 646-5347 to speak with a knowledgeable team member, or click here to create your account now.