Silver price outlook - strong demand fundamentals but persistent price manipulation

Disclaimer: The views expressed in this article are the authors own. This is not financial advice and before making any asset allocation decisions, you should consider your own financial position and possible seek professional advice.

With persistent inflation globally for the last few years, investors have increased their interest in finding and holding hedging positions in their portfolios. Gold has traditionally played this role and to a lesser extent silver, along with other precious metals. Ultimately any real asset which has some degree of scarcity and desirability can also effectively play this role. This could be anything from vintage sports cars to pieces of art, real estate or fine wines. Of course, this is also a role that Bitcoin is also particularly well suited to. This article will review the medium term (3 to 5 years) outlook for silver, considering drivers and risks, and speculating on the most likely price range.

Relative to other precious metals, silver enjoys unrivalled industrial demand with strong growth prospects. According to the Silver Institute, total demand for silver grew by 18% to a record 1.24 billion ounces (35.2 thousand tonnes) between 2021 and 2022, with a record 557 million ounces (45% of total demand) consumed in industrial applications. As the best electrical conductor of all metals, silver finds many use cases in electrical and electronic engineering applications. Approximately 25% of this industrial demand found its way into photovoltaic cells. Significant industrial growth is also being driven by 5G infrastructure investment and electrification of the automotive sector (both vehicles and charging infrastructure). Jewellery fabrication also experienced significant growth in 2022, relative to 2021, increasing by ~30% year on year to nearly 20% of all demand. This growth was driven by pent-up demand following reduced demand during the global COVID lockdowns. Demand for silver for investment products also experienced strong growth in 2022, increasing by 20% relative to 2021 to account for ~27% of total silver demand in 2022.


By way of contrast, supply remained constant at around 1 billion ounces per annum, with a little over 80% coming from newly mined silver and the balance from recycling. The deficit of close to 240 million ounces in 2022 adds to the deficit of ~50 million ounces in 2021. This fully offsets the supply surpluses that were experienced over the preceding decade. With the expected strong growth in industrial segment to persist for the medium term, particularly driven by electrification, this supply deficit is expected to persist over the next few years, at least. Longer term, with persistently high silver prices, supply can be expected to adjust, with new mines coming online and greater levels of recycling becoming economically feasible.

These supply and demand dynamics are extremely bullish for the price of silver in the short to medium term. At the time of writing the price was around $24 for an ounce and with ongoing supply deficits, we could easily see price finding balance at around $30 per ounce. An additional positive tailwind for the metal is the growing interest in its role as an inflation hedge and for investors to hold physical coins and bullion rather than ETFs. A few expert commentators are suggesting much higher silver prices within the next 2-3 years. The more reasonable amongst these are suggesting $40-50 by 2025 whereas the most extreme forecasts are suggesting prices as high as $100 per ounce. One such analyst is Keith Neumeyer of First Majestic Silver.

Key risks to the price outlook include fluctuations in industrial demand, an economic slowdown, trade tensions, or technological advancements that reduce silver's industrial usage. Each of these headwinds could impact its price negatively. The relationship between silver and the U.S. dollar is inversely proportional. A stronger dollar can make silver relatively more expensive for international buyers, potentially dampening demand and influencing its price. Additionally, a swift and robust global economic recovery, with a sustainable decline in inflation may reduce investor interest in safe-haven assets like silver, limiting its price growth potential. These are all real risks, but I personally do not expect these to be the main headwinds holding the silver price back in the short to medium term.

I believe the main headwind that silver faces is the manipulation of the silver price. The market has a long history of price manipulation by deep pocketed financial players. In 1980, the Hunt brothers’ infamously tried to corner the silver market. This very public attempt to build a massive position through leveraged futures contracts ultimately failed spectacularly leading to massive losses of $1.7 billion for the Hunt Brothers and an unwinding of their position. Nevertheless, these tactics continue today, albeit in a much more subdued manner with collusion between major market-makers. Financial players such as JP Morgan are known to manipulate the silver price, keeping it artificially low by selling futures contracts. They have even been found guilty of illegally manipulating the silver price and even received fines for their efforts (insubstantial compared to the profits they have made) but this type of manipulation continues today. The other challenge for getting true price discovery is the share of trade of silver ETFs. Whilst some ETFs collateralise the instrument with physical silver bullion, many hold ‘paper silver’ through futures contracts. These silver contracts are ‘rolled over’ at expiry and the silver is never actually physically delivered. This allows rehypothecation of silver many times over without impacting actual demand for the metal. Literally silver is created out of thin air. This is a financial trick that our banks are experts at and a cornerstone of our financial system. The Federal Reserve creates money out of thin air, loans this to the Treasury, secured by future tax dollars who in turn pay real interest on the debt. The debt backed money is then pushed through the banking system, with the debt instruments held as fractional reserves, against which loans are made many times over. Until we have a new money system, moving away from fiat currency, we can expect this type of price manipulation to continue unabated.

In summary, I believe we are looking at very bullish fundamentals for the silver price over the next 3-5 years. I believe that we could easily see the price rise to the range of $40-50 per ounce, providing 100% upside from current levels. This outlook is predicated on growing demand for the physical metal for investment, ornamental and industrial uses, however there are risks to this outlook due to manipulation of the silver price by major financial institutions acting as market makers in the futures markets.