Silver Prices Expected to Rise Due to Geopolitical Tensions and Supply Challenges
Report by Motilal Oswal Financial Services Ltd
In a recent report, Motilal Oswal Financial Services Ltd highlighted the impact of geopolitical tensions on precious metals, particularly silver. The Silver Institute’s forecast indicates that silver demand is expected to grow by about 2% from 2023 to 2024, reaching around 1,219 tonnes.
Industrial Demand and Supply Challenges
Industrial demand for silver is projected to hit a record high of 710.9 tonnes, driven by an 8.5% increase compared to 2023 and a remarkable 40% rise since the pandemic. However, total silver supply is expected to decrease by about 1%, aligning with levels observed in 2021. Mine production is projected to fall to 823.5 tonnes due to ongoing operational challenges.
Market Dynamics
Manav Modi, Senior Analyst of Commodity Research at Motilal Oswal, stated, “Life time high prices at domestic front seem unfavourable in terms of recycling which indicates that the incentives for recycling are not strong enough to significantly increase supply. Demand for silver is projected to exceed its supply for the fourth consecutive year in 2024.”
He added, “This suggests that the market balance for silver will remain in deficit, contributing to potentially higher prices as demand outpaces supply. Overall, these factors indicate a challenging supply situation for silver in 2024, with production constraints from mining and ongoing deficits in market balance driving the market dynamics.”
Geopolitical and Economic Factors
Geopolitical conflicts, such as the Russian invasion of Ukraine and tensions between Israel and Hamas, continue to exert pressure on market stability. With the United States entering an election year, economic unpredictability could further enhance silver’s appeal as a safe haven asset. Tensions between China and Taiwan also contribute to a volatile investment environment.
Federal Reserve Policies
The U.S. Federal Reserve has maintained a steady interest rate environment, having raised rates significantly over the past year. As inflationary concerns ease, market participants are now adjusting their expectations for rate cuts. According to the CME FedWatch Tool, there is a 70% chance of a rate cut in the September meeting, which could provide further upward momentum for precious metals like silver.
