Silver shines on fresh demand outlook, but gold glitters brighter

The demand outlook for silver is poised to improve aided by the ongoing pick-up in green energy initiatives, globally. Silver is a precious metal and has industrial uses. Also, the increasing traction for electric vehicles and 5G technology would buoy industrial demand for silver.

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However, a bigger catalyst for silver demand and prices is the reopening of the Chinese economy. “For silver, it has been observed that it rallies when base metals rise due to industrial uses. China reopening will be a big game changer for silver,” said Navneet Damani, senior vice president, currency and commodity, Motilal Oswal Financial Services Ltd.

From its recent lows, silver prices have recovered, but is far from shining. “Silver is undervalued for quite some time now. According to the Silver Institute, silver’s global supply would lag its demand in 2022, so a significant deficit has reignited buying interest in silver in the last few months and bodes well for prices, in the medium to longer term,” Sugandha Sachdeva, a commodity market expert, said.

However, if silver manages to decisively breach $30 an ounce levels in the global market, then a steep upside momentum is likely in 2023, she added. In the international market silver is currently trading at $23.5 per ounce. Furthermore, the gold-silver ratio, a metric that bullion investors commonly track, has moderated. It is now hovering around the 76 mark after correcting from its recent peak levels of around 96. This ratio measures the relative strength of gold versus silver prices. When the ratio is high, the consensus is that silver is favoured because the latter is undervalued, so it should start catching up, said Sachdeva. “That said, to outperform gold, especially with the global recession fears still looming, it will be challenging for silver,” she added.

But, while interest rate hikes dampen demand for a non-interest-bearing commodity like gold, when recession fears play out, then investors typically prefer betting on gold as a safe haven asset than silver. Two, recession will mean subdued business conditions, which is a setback for silver’s industrial demand.

Meanwhile, the domestic market, may see silver prices touch ₹74,000 a kg in Q1CY23 and ₹85,000 per kg at the end of CY23, from the current ₹67,000 per kg levels. The increase in prices will, however, be accompanied with some corrections in between, Damani said.