We have spent much time recently talking about geopolitical issues which affect the price of the US Dollar and thereby, indirectly, the price of gold and silver and its effect on demand.
We have been requested, particularly by newer subscribers, to comment upon the main forces which tend to drive silver demand other than just price.
Now to be fair, there are probably up to 10 factors which have key influences and around 20 factors which have an important influence, but in order to make this video manageable we shall focus on just 5 and not in any order of priority as sometimes the importance is subjective or, in most cases, time dependent.
OK, firstly we wish to confirm right at the start that Silver is known as the most versatile of the precious metals, as it has unique properties and is used in many applications – in fact hundreds of applications if not thousands, from solar panels, mirrors, white goods, consumer technologies, jewellery and medicines and the list continues.
Unlike gold, silver, due to its strength, malleability and ductility is demanded heavily by industry and generally this has represented something close to 60% of all physical demand, though it did drop a a little last year.
Talking about last year, according to the Silver Institute’s yearly supply and demand report, in 2018, global physical silver demand increased around 4% from 2017. Despite another drop in the consumption of silver coins, 2018 showed greater silver bullion consumption in the form of silverware and jewellery.
Moving forward, increased demand for silver is expected to come from the solar energy sector, since the precious metal is a great conductor of both heat and electricity but this has been advocated for a number of years, and whilst this sector has been a major boom for silver, recent figures have tended to disappoint against expectations, though many still believe this is a major growth area for the future.
So here are 5 factors which drive silver demand and whether you are an investor, trader or stacker, you should certainly keep a watchful eye on these.
- Industrial Fabrication
Demand in 2018: 578 million ounces – down 1% on 2017
If one bears in mind that total silver demand was a little over 1 billion ounces, at 578 million oz one can immediately see the importance and relevance of Industrial demand.
Electronics represents nearly 43% of this in products such as multi-layer ceramic capacitors and membrane switches; and photovoltaic such as solar panels 14%, so of course any decline in global electronic demand such as mobile phone, ipads, laptops and computers etc can have quite a significant effect in this area.
Last year, as already mentioned, demand from industrial applications decreased 1% but remained a huge driver. Much of the fall was the result of lowering demand in the photovoltaic sector whilst electronics, electrical, brazing alloys and solder sectors rose.
The Automotive industry was also seen as a major growth area with some 36 million ounces of silver being used in automobiles – however recent declines in the sale of automobiles and cars in particular, across the globe will certainly have a negative impact on silver in this area.
Silver’s antibiotic properties hold out hope for silver’s revival too especially as only recently have scientists learned how silver works as a biocide and early tests show its relative success against staph infections such as MRSA.
It goes without saying that any slowdown in global growth could have an adverse effect on silver demand for industrial purposes moving forward.
Demand in 2018: 212 million ounces – up 4% on 2017
Few metals are better suited for the making of jewellery than silver, due to its lustre and resilience and, when compared to gold, is most affordable, not forgetting, like gold, its hypoallergenic properties either.
It often perplexes us, with silver so cheap, and silver jewellery such as earrings and rings costing only a few dollars or pounds, why anyone would purchase a cheaper base metal piece of adornment, that causes greening of the skin or worse, some allergic reaction, we find this difficult to understand – but we are just old men – what do we know.
The purest silver is .999 fineness, which is 99.9% silver and is considered too soft for jewellery making. For this reason, jewellery designers add harder metals, like copper, to strengthen it. This produces what is known as “sterling silver.”
Sterling silver is 92.5% silver and 7.5% copper. Sterling silver has been a standard for silver jewellery in many countries for centuries. It’s ideal for earrings, bracelets, and necklaces because of its enhanced durability.
Last year saw a significant increase in silver demand from India, primarily because of the relative increase in the price of gold in rupee terms and also certain Government restrictions on gold imports and ownership.
- Bullion coins and bars
Demand in 2018: 181 million ounces – up 21% on 2017
This is an area generally of most interest to our subscribers and viewers and there are a plethora of silver coins to acquire; with the American Silver Eagle and the Canadian Maple Leaf perhaps being the most iconic and well known. However, Australia, Mexico and Canada not forgetting of course the UK also have a wide offering of classic designs.
Although this sector was up overall in 2018 in terms of coin demand coin fabrication fell by some 4% compared with 2017 with the increase being taken up by silver bar demand which rose an impressive 53% the result of India’s increased demand of some 115% over the previous year.
Demand in 2018: 61 million ounces – Up by 6%
In 2018, silver consumption from the silverware industry jumped up 6 percent from the previous year thanks to a strong recovery in demand from India, which experienced a 10 percent increase to 41.8 million ounces. Additionally, Turkish silverware demand rose by 20 percent to 1.6 million ounces, a rise not seen since 2009.
Now compared to the other areas, silverware demand is comparatively small but nevertheless constitutes quite a substantial hoard of above ground silver as such items as flatware or cutlery, hollowware such as teapots and sugar bowls etc have been made from silver for millennia and from sterling silver since the 14th Century.
- Commodity Exchange Activity
COMEX trading 119,935 Moz – up 4%
COMEX continues to be the world’s largest silver futures trading platform, with trading volume posting a moderate 4% increase, to a nominal 119,935 Moz (3,730,375 t) equivalent in 2018.
The COMEX is based in the United States but traders from all over the world buy and sell on this exchange, and its prices and daily activity play a considerable role in the global precious metal markets.
Net managed positions in silver swung from a net short to a net long position at the start of last year as the U.S. dollar softened.
This to and froed until July, when COMEX silver turned back to net short, its longest streak of net short positions recorded since the CFTC amended its current disclosure since 2007.
The 22 consecutive weeks of net shorts ran until mid-December, when funds finally started to cover their positions, pushing silver back to net long. This switch was driven by a weaker U.S. dollar and U.S. equities, as both asset classes endured a change in investor expectations.
Now we include this here because although very few contracts actually result in the exchange of physical silver i.e. they are primarily paper contracts, traders can have settlement in physical product which are stored in warehouses and can also be acquired outside of existing holdings.
Needless to say, that if every contract demanded physical delivery, it cannot be delivered, as the leverage is far greater than what is available – nevertheless the ‘paper price’ of silver does have a profound effect on physical price and therefore its demand.
So, there we have it – albeit brief, 5 key factors affecting silver demand – there are many more, but we hope you have at least found these factors useful, and of course we would welcome any comments you may wish to make.