As we stand at a crossroads of economic uncertainty and extraordinary market dynamics, many are wondering what the near future of precious metals, and silver in particular, will look like. The last decade has witnessed major fluctuations in silver prices caused by a combination of economic factors, technological innovation, and geopolitical tensions. However, we are interested to see what we can expect over the next 5 years. Will current growth trends continue, or are there potential surprises ahead?

The current situation

Let’s start with an overview of the current situation in the silver market. The current silver price is the result of a number of factors, the result of which is a 31% increase in the silver price over the last year. Some investors are understandably already showing satisfaction at this, but silver seems to hold much more potential. First, we are looking at a repeat of the record highs at $50 an ounce, and then $100 or more may soon be within reach. Why is this scenario entirely plausible? I believe that many of the factors that can have an extremely positive impact on the silver price have not even been “activated” yet and will only become apparent as the current commodity trend continues.

Let’s take a look at the factors that will have an impact on the silver price over the next 5 years.

1. Inflation and monetary policy

Historically, the value of silver “has been rising amid high inflation, economic uncertainty, and a weak US dollar. If inflation expectations remain high or continue to rise, silver is likely to remain an attractive investment as a hedge against inflation.

The interest rate cuts that lie ahead can do three very important things for silver:

a) First, lower interest rates reduce the yields on bonds and other debt instruments, which increases the attractiveness of alternative investments such as silver. Investors often seek safe investments when interest rates are low, as precious metals such as silver do not earn interest or dividends but retain value in times of financial uncertainty.

b) Second, a reduction in interest rates usually also means a more accommodating monetary policy, which can lead to a return to higher inflation. Silver is traditionally seen as a hedge against inflation, which means that investors increase their demand for silver to protect their purchasing power. This increases the overall demand for silver and consequently puts upward pressure on its price.

c) Thirdly, lower interest rates lower the cost of financing for companies, which can increase industrial production and thus demand for silver, which is used in a wide range of industrial processes, including electronics, medicine, and solar cell production.

Vir: Incrementum

2. Geopolitical tensions

Silver has long been known as a safe haven in times of geopolitical tensions and economic conflict. If such tensions increase or stabilize, this could further support silver demand. Investors often turn to precious metals, including silver, as a means of portfolio diversification and protection against global instability.

In addition, geopolitical conflicts can affect the production and supply of silver, particularly in regions where a large part of the mining takes place and where silver is a direct or by-product of production. Potential restrictions on silver supply may lead to increased market tensions and, consequently, price increases.

It is therefore crucial for investors and industrial users to keep an eye on geopolitical developments, as these events may have a long-term impact on the price and availability of silver. Given current events, wars, and the polarization of the world, with no let-up in sight, this geopolitical factor needs to be taken very seriously.

3. Industrial use

Industrial demand for silver is also an important growth factor, as it is strongly linked to renewable energy and advanced technologies. The Silver Institute has forecast record industrial demand for silver this year. This increase is due to the rapid deployment of solar photovoltaic cells, particularly in China, and the solar industry is also increasing its deployment in other parts of the world.

Demand for silver in solar power increased by 63% in 2023 compared to the previous year and now accounts for more than 16% of total demand (compared to 5% in 2014). Developments in technology and a shift towards cleaner energy sources could boost the need for silver, which will continue in the years to come. Demand for silver from solar panels is estimated to increase 2.4-fold to 320 million ounces by 2030, representing around 35% of the current silver supply.

Vir: The Silver Institute, Bloomberg

4. Mining problems and supply

Constraints on silver production due to problems in the mining industry and geopolitical disruptions in key producing countries may reduce the availability of silver on the market. Underinvestment in the commodities sector and outdated mine infrastructure further contribute to this challenge by limiting the capacity to increase production. In such circumstances, silver producers-mining companies and industrial silver users will be exposed to increased risk due to price and supply volatility. This underlines their need to diversify their supply chains and find alternative sources of silver.

But how will companies access adequate silver supplies and at what price, if the current situation is a reflection of a decade of underinvestment in this area? This will lead to renewed investment in the development of new mining projects and the modernisation of existing ones, which could improve the availability of silver on the market again in the future. But we are still a long way from this, with new deposits in decline and mines taking on average 15 years to develop from start-up to production.

Vir: S&P Global

5. Market sentiment and speculative trading

As with all precious metals, market sentiment and speculative activity can have a strong influence on the price of silver. At the moment, the main source of demand for silver is industry, while purchases by investors and institutions are at a low level. It is as if we had no idea what kind of story Silver was cooking up.

On the investment demand side, we expect a renewed and pronounced entry of investors soon, not least for two technical reasons.
a) The first reason, silver’s breakthrough into a renewed, upward trend after 13 years, is a clear indication that investors can expect prices to rise.
b) The second reason, the cyclicality of the relationship between commodities and equity markets, suggests that a commodity breakthrough is imminent, illustrating a renewed shift of attention towards tangible investments. As in 1971 and 2002.

Vir: Gradhhy

Conclusion

The above factors will be a key catalyst for silver price growth over the next 5 years, assuming consistent macroeconomic factors over time. Nevertheless, investors should always be prepared for possible short-term deviations in silver prices and possible changes in global politics and economies. These changes may affect the intensity of growth and volatility of prices, but they cannot jeopardize the long-term trend. In such cases, the investor should be aware of the fundamentals underlying the current commodity cycle, of which silver is a major representative. The macro picture of the silver price movement can make us optimistic and positive about the future.