Silver Expected To Trade At Rs 80,000 Per KG Over The Next 12-15-Months

After couple of action packed years, the year 2021 was kind of a whitewash for precious metals bulls, with both MCX gold and silver giving 4% and 8% negative returns respectively. Even though silver was seen majorly following gold's trail, MOFSL witnessed the white metal's restricted gains amidst volatility in base metals.

Short run hicupps

In short run, Fed's policy decisions and volatility in Yield and Dollar could weigh on the prices; although rising inflationary pressure, geo-political uncertainties, a push in overall safe haven appeal could be supportive for the silver price. The volatility could bring the prices to lows of Rs.60,000 followed by Rs. 58,000 also, whereas immediate resistance is at 65,500 and sustained break above same could take the prices higher towards Rs.67,500. MOFSL believe that any such fall should be a good opportunity to accumulate for a 25% upside targeting Rs. 72,250 followed by Rs.80,000 over the next 12-15 months.

Investment Demand

Comparing the demand and supply numbers, a ~5% move is seen in supply from 2020 to 2021, while more than ~15% move is seen on demand side in the same period. According to silver institue, global silver demand forecast to rise to a record high of 1.112 bln oz in 2022. The increase will be driven by record silver industrial fabrication, which is forecast to improve by 5%, as silver's use expands in both traditional and critical green technologies. Physical silver investment deman is projected to jump 13% in 2022, achieving a 7-year high. Silver's use in jewelry and silverware is also expected to strengthen in 2022 by 11% and 21%, respectively.

On other hand, ishares ETF did not support market sentiment as a net outflow of ~870 tonnes was seen in previous year. CFTC positions also witnessed a selloff, although recovered well from near zero line. Although, this year has seen a positive start reporting an inflow of ~425 tonnes in the first two month of 2022.

On domestic front, market participants had multiple sources to invest in Gold although there were limitations for investment in silver. Investors now have an option to invest in Silver ETF's (recently launched) which could also be a supporting factor for metal prices amidst an increase in demand. With 2021 not a positive year and prices currently hovering around lows, one more investment source in silver could be a game changer on domestic front. Currently, there are a few companies who have launched Silver ETF and few other fund houses have applied for the same; awaiting SEBI's approval.

Silver as an Industrial Metal

The silver markets lagged behind gold over summer, with gold-silver ratio rising from ~65 to ~80 levels. Unlike gold, which is primarily traded for investment or jewellery production, silver is used in a range of industrial applications. It is used in a range of industrial applications, from solar panels, electronics and electric vehicles to medical devices etc.

Demand to push prices higher

With industrial consumption accounting for around half of world's annual silver demand, industrial activity has an impact on silver prices. In 2021 itself we have seen a noticeable interest of market in Electric vehicles, Solar and other green technologies.

The shift towards solar energy is another critical driver that could support silver prices. Healthy purchases from the investment and industrial segments helped silver demand surpass 1 bln ounces for first time since 2015. While some of that heightened demand has been offset by a 6% increase in mine supply.

Demand consumption from renewable sector could start to pick up as well. According to silver Institute a supply deficit for silver market in 2022 could be seen, amidst the efforts regarding the de-carbonization push and rise in overall industrial demand.

Overall, silver with a dual advantage i.e. getting a push from uncertainties and inflationary pressure and rise in industrial demand is supportive for the metal prices. Looking at the Gold /silver ratio and following gold's trail, some consolidation or pressure for short term could be possible, although that could be an opportunity to include the metal in portfolio with an expectation of a big upside in the prices. Rise in industrial demand with rising global growth expectations, focus on ESG and green technologies could be a major highlight supporting the medium- long term outlook.