Demand Continues for Silver Supply

The #SilverSqueeze movement has been having an impact on silver prices and the availability of physical silver.  Even the United States Mint is acknowledging the effects of this grassroots movement in a recent post on their Facebook page.  A telling quote from that post reads (originally, anyway – it now has been updated), “The global silver shortage has driven demand for many of our bullion and numismatic products to record heights[.]”  The silver shortage noted in this statement is offered as the reason for delays the Mint foresees for several of its upcoming silver product releases.  There are also other factors at work propelling demand for physical silver higher and therefore, making supply less available.  Today, we will look at what this means going forward, and what are possible and likely outcomes for silver and for precious metals investors.  

In January and February of 2021, spot silver prices spiked over $30 for the first time since 2013.  Much of this volatility and price rise was due to a social media campaign (taking place on Reddit, initially) encouraging people to purchase silver-based investment products.  While the specific $30 spot price was short-lived, a recent 87-page report on all things silver from the Silver Institute included a special segment on the Reddit silver phenomenon and acknowledged that the movement continues to impact the price and availability of physical silver.  

While many were using silver-based ETFs for the initial #SilverSqueeze efforts, more knowledgeable voices from within the movement began to point out that the only way to make a lasting difference was to purchase and hold physical silver.  By purchasing and holding physical silver, inventory becomes unavailable to the paper silver machinations most often used to manipulate the price of silver.  Soon, the demand for ETFs such as SIL began to drop, and the rush for physical silver took off.  The impact of increased physical demand has not stopped or slowed significantly since the #SilverSqueeze began over four months ago.  

But the #SilverSqueeze phenomenon is only one part of a much larger story concerning silver.  There are several forces currently at work that are causing the future to look bright for both silver prices and the investment benefits enjoyed by owners of physical silver.

Physical silver is required for some exciting emerging technologies, such as in flexible and printed electronics. The term “flexible electronics” describes the plastic boards inside of a laptop or desktop computer, with various soldering and electronic components attached. While we’re probably most familiar with some of the more rigid “flexible” electronics, like the example noted above, there is a new type that can be described as being as flexible as a shirt or other common article of clothing.

These new cloth-like flexible electronics are often created by various means of “printing.” Though hard to believe, it is now possible to print electronic circuits onto fabric or vinyl substrates using inkjet printers, screen printers, aerosol jet printers, and other types of printers. An example of this technology would be a shirt with circuits printed onto the fabric that monitor someone’s breathing rate, heart rate, distance walked, etc. What looks like a normal shirt is instead a health monitoring device, thanks, in part, to the silver-infused ink used to create the electronic circuits. There are countless medical devices that use this technology, with more on the way. Industry experts expect a steady increase in physical silver demand, as printed electronics experience a 54% growth rate over the next decade (see chart below).

An unexpected increase in demand for physical silver is also forecasted for the photography sector. This sector has been in decline for many years, as digital means of photography have grown. But currently, there is an uptick in demand for photographic film once again, just as other demands for silver are also increasing. In a process I do not fully understand, silver bullion is broken down into small particles and mixed with other chemicals to create the film used in film-based cameras. New technologies have created higher resolution cameras (which use silver), requiring higher resolution film (which also uses silver). While digital photography is not going away, analog photography using silver-infused film is making a comeback.

The automotive sector is also a source of increasing silver demand, as manufacturing ramps back up following the pandemic lockdown conditions. But rather than returning to the same silver demand as before, the industry’s need for physical silver is actually increasing, as the types of power trains being produced in automobiles today seem to require more physical silver to make than those manufactured in 2019 and before. While internal combustion engine vehicles are being produced in fewer numbers, gas-electric hybrid and fully electric vehicles are projected to increase by 250% in coming quarters (see chart below). The increased electronics and photovoltaic cells used to manufacture these power trains equates to an increased demand for physical silver.

Growth in printed electronics, the automotive sector, and film-based photography leads to an 8% increase in industrial demand for silver for 2021. But there are also significant increases in the jewelry and silverware sectors forecasted for this year, adding to the overall 2021 demand for physical silver.

But what many of us in the precious metals sector are focused on is investment demand. Investment demand is forecasted to rise 26% for 2021, and we have certainly seen the start of that increase in the first half of 2021. With expansionary monetary policies likely to continue, so will investment demand for physical silver. We are currently in a situation where the increased industrial demands for silver are supportive of higher silver prices, thereby increasing investment demands for silver.

When we view the #SilverSqueeze movement in light of all the additional supportive reasons for owning physical silver, the efforts of the movement’s originators could not have come at a better time.  But as we mentioned in a recent Metals Minutes podcast, it is time to consider a wider variety of silver products.  You can save a few dollars an ounce by purchasing sovereign coins, silver rounds, or silver bars. Due to the above mentioned supply challenges at the United States Mint, it is a great time to broaden our horizons for silver stacking and diversifying our holdings.  I’ve recently added silver Krugerrands, Maple Leaf coins, Philharmonics, bars and others to my own mix, and I like them all.  In the end, remember - silver is silver.