Silver Soars -Demand & Deficit Drive 2024 Rally
Silver has emerged as one of the most dynamic commodities in 2024, recording an impressive surge of nearly 25%, outstripping gold and becoming one of the top performers among major commodities. Despite its significant rise, silver remains relatively undervalued compared to gold, with the gold-to-silver ratio currently at around 80, against a 20-year average of 68. The rally in silver is closely linked to gold's record-setting performance, driven by central bank purchases, heightened retail interest in China, and speculation of potential interest rate cuts in the US. Physical sales of silver, especially through dealers like Singapore-based Silver Bullion Pte, have surged even as investor interest in silver-backed exchange-traded funds remains tepid.
The increased physical sales of silver reflect a strategic shift among investors. According to Gregor Gregersen, founder of Silver Bullion Pte, many clients who traditionally prefer gold are now turning to silver, anticipating a rebalancing of the gold-to-silver ratio. This shift is evidenced by the company’s sale of 74 ounces of silver for every ounce of gold in April, significantly up from the average of 44 in 2023. Citigroup Inc. suggests that if the Federal Reserve reduces interest rates and economic growth remains strong, the gold-to-silver ratio could decrease to around 70. However, a potential economic slowdown could reverse this trend, highlighting the volatility and interconnectedness of these precious metals.
Silver's dual role as a financial asset and an industrial input, particularly in clean-energy technologies, further bolsters its appeal. The metal is integral to solar panel production, and with the sector’s robust expansion, silver usage is projected to hit a record high this year, according to the Silver Institute. This surge in industrial demand, coupled with already constrained supplies, has led to a market deficit for the fourth consecutive year, with 2024 expected to see the second-largest shortage on record. As a result, industrial users are tapping into major global inventories, leading to a significant drawdown in stockpiles monitored by the London Bullion Market Association and exchanges in New York and Shanghai.
Looking ahead, the depletion of LBMA stockpiles appears imminent if the current demand trends continue, warns TD Securities. The actual volume of readily available silver is often overestimated due to the inclusion of exchange-traded fund holdings in headline figures. A commodity strategist, Daniel Ghali noted in an April report that tightening supplies is inevitable as industrial demand escalates. Gregersen concurs, suggesting that the real challenge in the coming months may shift from selling silver to securing sufficient supply to meet the burgeoning market.
