Will Silver Hit $100?

• Silver used to trade for almost $50 per ounce in 2011.

• The Fed seems to be willing to stop tightening in the near future and so are other central bankers.

• The grey shiny metal is essential for green energy transition.

• Advanced AI chips and electronic components also require excessive usage of industrial metals but most importantly silver.

The US reported very low CPI readings for October. These almost decreased to two-year lows. This is the most important macroeconomic indicator to watch nowadays if you are trying to guess what the Fed will do next. Although unemployment numbers, retail sales and the overall health of the US economy matter, the Fed has been paying most attention to inflation. A target of 2% has been mentioned many times in the Fed’s press conferences. So, if the inflation rate falls down even further, the Fed would likely be forced to stop hiking and even start easing. Add to that the fact the unemployment market is seeing signs of a slowdown. For the month of October the US unemployment rate hit 21-month high. It increased to 3.9% in October 2023, slightly exceeding analysts’ expectations and the previous month's reading of 3.8%. There is a possibility of a soft landing if there is no major “black swan” event and the Fed reacts appropriately to these statistics. Gold and silver prices grow the most when the monetary conditions are easing.

For example, in 2011 when the Fed’s fund rates were really low, silver prices were at the highest totaling almost $50 per ounce.

MacroMicro

The only exception was the 1970s – 1980s period when the interest rates were at their all-time highs. The commodity prices, however, traded so high mostly because of inflation but most importantly due to the Hunts’ speculations. But as a rule of thumb the lower the interest rates, the higher are the silver prices.

Macrotrends.com

The diagram above shows silver prices adjusted for inflation. In 1980 the inflation-adjusted silver price per ounce was as high as $140, whilst in 2011 it was close to $70 per ounce. The point I am making is that the current price of around $23 per ounce is not the absolute maximum silver can reach.

But apart from monetary easing, the green energy transition and artificial intelligence could be excellent demand stimuli for silver. After all, tech and industrial applications account for more than half of global silver demand.

Silver Institute

For example, according to scientists at the University of New South Wales, solar manufacturers will likely need more than 20% of the current yearly silver supply by 2027. By 2050, solar panel production will consume almost 85–98% of the current global silver reserves.

But artificial intelligence will require vast supplies of precious metals. According to Metals Focus, there will be higher demand for chips powering AI technology. But in order to produce chips, precious metals are required. The demand for these stayed somewhat low due to the fact there was low global economic activity. For example, the demand for gold in the technology and industrial sector was down 3% year-on-year in the third quarter.

Due to the evolution of AI, however, this trend could change in the coming year, not just for gold, but also for silver. According to Metals Focus, shipping growth for artificial intelligence servers and switches will increase by double digits over the next several years to stay in line with the evolution of AI algorithms. Demand is also expected to increase for silver-palladium Ag-Pd multi-layer ceramic capacitors (MLCCs) in high power components.

Interestingly, artificial intelligence demand for precious metals will most significantly affect the silver market. That is because the grey shiny metal has the lowest electrical resistance among all metals at standard temperatures. Moreover, it is an essential component in many electronic applications. The metal is already in short supply due to rising demand in the green energy sector. So, silver demand will likely run hot over the next several decades.

Monetary easing and high industrial demand are very bullish factors for silver. Although the timing is quite uncertain here, there is still potential for silver to surge to triple digits. The fundamental factors are all there. Moreover, in the past silver used to trade very high. The possible downside risks are a potential recession ahead as well as any speculators who might hold the prices down.

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