After a couple of action packed years, 2021 was kind of a whitewash for the precious metal bulls, with MCX gold and silver futures declining around four percent and eight percent respectively. Even though silver majorly followed the yellow metal’s trail, volatility in base metals also put pressure on the white metal.
In the first few months of 2021, silver gained some traction due to short squeeze, US President Joe Biden’s fiscal stimulus measures and a rebound in global industrial production. However, the gains were capped following an uptick in the dollar as the US central bank looked to tighten its monetary policy. Besides inflation, one of the major themes in the market, worsening geopolitical uncertainties on account of Russia-Ukraine tensions and the fear of rising COVID cases have supported bullions prices.
Silver in for a rise
Silver is a strong play on industrial demand and green technologies. The shift towards solar energy is a critical driver that could support silver prices going forward.
According to The Silver Institute, global silver demand is forecast to rise to a record 1.112 billion ounces in 2022, driven by record industrial fabrication, which is forecast to improve by five percent, as silver’s use expands in both traditional and critical green technologies. Physical silver investment demand is projected to jump 13 percent to a seven-year peak in 2022.
On the domestic front, investors now have an option of investing in silver ETFs, which could also be a supporting factor for metal prices amidst rising demand. The addition of another route of investment in silver could be a gamechanger. Currently, a few companies have launched silver ETFs and other applicants await market regulator SEBI’s approval.
Unlike gold, which is primarily traded for investment or jewellery production, silver is used in a range of industrial applications, from solar panels, electronics and EVs to medical devices, and so on. In 2021 itself, there was noticeable market interest in EVs, solar and other green technologies. Growing internal combustion engine powertrain electrification has underpinned increasing use of silver globally in the automotive industry. Many automotive safety features depend on silver.
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Rising demand for solar energy is positive for silver. Silver in the photovoltaic segment has risen from around five percent of total demand for the white metal in 2010 to over 10 percent by 2021. In 2022, the demand is expected to rise by well over 10 percent. Demand consumption from the renewable sector could start to pick up as well. The whole story around de-carbonisation as discussed in COP26 and the whole ESG transition that is taking place in the economy will push demand for green technologies.
Outlook
Overall, silver has a dual advantage:
Looking at the gold/silver ratio and following the yellow metal’s trail, some consolidation or pressure could be possible for the white metal in the short term, which could be used as an opportunity to add it to the portfolio. A rise in industrial demand in tandem with global growth expectations, and the focus on ESG and green technologies could be a major highlight supporting our medium- to long-term outlook.
In the short run, the US central bank’s policy decisions, and volatility in bond yields as well as the dollar could weigh on the prices. However, rising inflationary pressure, geopolitical uncertainties and an increase in silver’s overall safe haven appeal could be supportive for the price.
Volatility could bring silver to lows of Rs 60,000 and Rs 58,000. Immediate resistance is seen at Rs 65,500, a sustained beakout above which could take the price towards Rs 67,500. We continue to believe that any such fall should be a good opportunity to accumulate silver for a 25-28 percent upside, targeting Rs 72,250 followed by Rs 80,000 over the next 12-15 months.
--Navneet Damani, Senior Vice President-Commodity and Currency Research at Motilal Oswal Financial Services. The views expressed in this article are his own.
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