CPM Group expects silver prices to rise sharply at some point over the next two years. In fact, CPM has been projecting that such a sharp jump in silver prices would develop around this time since at least 2013.[i]
There are real and strong reasons to expect silver prices to rise sharply at some point over the next couple of years. These primarily center on increased investor demand for physical silver. All past periods of sharp increases in silver prices have been driven by surges in investment demand.
The chart below illustrates that a surge in investor demand has been the factor behind every silver price spike since the 1960s: in 1978 – 1980, 2005 – 2011, and again beginning around 2019. In the 1960s investment demand was so strong that it caused the U.S. Treasury to remove silver from circulating coinage and stop issuing silver-backed Silver Certificates as paper currency.
It always has been a sharp increase in investor demand that has propelled silver prices higher. Strong fabrication demand and supply trends have helped create a market environment supporting higher prices, but it was the sharp increase in investor buying that pushed prices higher. That has been the history, and it is likely to be the case over the next couple of years.
[i] The research staff at CPM Group has produced long-term studies of silver supply, demand, and prices with 10-year projections since the early 1980s. Most of these reports since the late 1990s are available in CPM’s archives. The October 2013 Silver Long-Term Outlook report projected a nominal annual average silver price of $36.96 for 2022. The annual price in 2022 in fact was $21.81. That 2013 report also projected that the annual silver price would fall to $19.75 by 2016. In fact it dropped to $15.69 in 2015.
This CPM Group Market Commentary was sponsored by Silvercorp, one of the premier silver mining companies. We would like to thank Silvercorp for making this paid CPM Group research available free of charge.
Silvercorp offers investors exposure to silver production through its enhanced leverage to the metal. The Company’s mines have been consistently profitable, further bolstered by rising silver prices.
The chart above shows that net investment demand declined to 88.1 million ounces in 2022. Silver prices fell that year, too. In 2023 net investment demand for silver declined further, to 50.7 million ounces , the lowest level since 2005. Silver prices stabilized that year. This year, 2024, net investment demand is starting to increase again, albeit with some headwinds; so, too, the silver price is strengthening.
The present increase in investment demand for silver reflects a myriad of economic, political, and financial market issues giving investors around the world reasons to want to diversify their wealth and savings into silver and gold. CPM expects these economic and political issues will continue to lead investors to seek increased protection and diversification of their wealth with silver and gold for at least the next year or so, while they will remain concerns for many years to come.
This report explores the real reasons why it makes sense to own silver as an investment now, and to add to one’s silver investment holdings even at current silver prices around $30. It also will touch on why other factors, specifically rising silver use in solar panels and other fabricated or manufactured products, which help build a base off which silver prices rise but are not the key catalysts of major price increases.
What CPM Expects
This report presents CPM’s Intermediate-Term Silver Recommendations – our recommendations to be long or short, buy or sell, silver with a two to three year investment horizon. These recommendations all have been published in reports, many of which are available at the U.S. Library of Congress, the New York Public Library, and the library at Baruch University as well as in CPM’s records. The record begins in December 1980.
The chart below shows a record of buy and sell recommendations that have been extraordinarily prescient and accurate. These recommendations have been based on CPM’s proprietary supply, demand, and other fundamental statistics we develop and our analyses of the silver market. Nearly a half century of accurately understanding the silver market and projecting longer term price trends and levels suggests that the research and analysis behind CPM’s current price expectations as outlined in this report have a good probability of accurately reflecting current and future silver price trends. It also shows that CPM has had an intermediate-term Buy recommendation on silver since 2019.
CPM Group projects silver supply, fabrication demand, investment demand, and real and nominal prices 10 years forward. We project monthly prices out three months, quarterly prices out two years, and annual prices out 10 or more years.
At present CPM projects that investment demand will rise sharply and stay at high levels for the next three years. This is visible on the chart on page one. This is based on a complex set of macroeconomic, political, and silver fundamental trends that CPM expects to unfold during this time.
Such a surge in silver investment demand, to annual levels double and triple the 50.3 million ounces of net investment demand in 2023, are projected to push nominal silver prices to new record levels, both in terms of annual averages and daily prices. Inflation-adjusted real prices also are projected to rise sharply over the next three years.
CPM projects silver demand and prices most likely would subside for a few years after 2027 as economic and political conditions may slightly improve. Political and economic stresses are expected to remain high, however, keeping investment demand and silver prices high by historical standards. Later in CPM’s current 10-year projected horizon another wave of increased investment demand is projected to push silver prices higher once more. Overall, silver prices are projected to remain at historically high record levels.
It’s All About Investment Demand
The chart on the first page of this report shows an accurate portrayal of the balance between newly refined silver relative to fabrication demand – the amount of silver that is used, converted into manufactured products. This is the proper way to view all commodity market balances, and indeed it is the methodology used by reputable research and analysis firms across commodities, including silver and gold.
In the silver market, as with gold, ‘surpluses’ of newly refined metal[i] over fabrication demand represent metal that goes into refined metal inventories. Most silver and gold inventories are held by investors. These surpluses represent investor buying. These surpluses tend to appear when investors periodically want to add large volumes of silver to their inventories. Investors’ increased appetite for silver typically is driven by economic and political concerns, with some consideration of the availability of newly refined silver entering the market relative to fabrication demand.
It was investor buying in the 1950s and 1960s that in 1964 caused the U.S. Treasury to call in Silver Certificates (Treasury bills convertible to silver at $1.00 per ounce) and to stop using silver in circulating coins in the 1960s as well. This surge in investment demand culminated in the large volumes of silver purchased by investors from 1964 through 1970. The U.S. Treasury sold 905 million of ounces of silver bullion in those years to keep the price below the coin melt value of $1.29. It used another 678 million ounces of silver making extremely large and unusual volumes of coinage, much of which was immediately scooped up by investors. The U.S. Treasury had more than 3.3 billion ounces of silver in the 1940s. By 1970, all but around 136 million ounces were gone from the Treasury… into investor holdings.
It does not seem like a great deal given today’s prices, but monthly average silver prices rose 171% from $0.91 at the beginning of 1960 (having already risen 29% from $0.71 in 1946) to $2.46 in June 1968. This increase was entirely due to investor buying, albeit with investors eyeing rising fabrication demand and tightening supplies as the U.S. Treasury’s silver hoard was drawn down.
Similar waves of investment buying pushed silver prices higher in subsequent years.
- From 1971 to 1974
- From 1978 into early 1980
- From 2005 into 2011.
Each of these periods bears reviewing to understand the extent to which it always has been investment demand that has driven silver prices higher.
To summarize the important take-away for this report in the rise in silver prices from the 1950s into 1968, it was investment demand for silver that drove the U.S. Treasury to remove silver from its currency system, ceasing to use silver in circulating coinage and as backing for U.S. Treasury paper currency in the form of Silver Certificates. This represents the tremendous power that private investors can exert in the silver market.
After 1968 investment demand subsided for several years, as the chart on page one illustrates. Silver prices had risen severalfold and some investors decided to take profits. Investor demand for silver dropped nearly 50% in 1969 from 1968’s 226 million ounce net total, declining to 122.7 million ounces. Net investor demand declined further to 77 million ounces in 1970, and then devolved into net selling that lasted from 1971 through 1978.
Even in this period, there was a period of high inflation, recession, and political turmoil, peaking in 1973 and 1974. Prior to that, silver prices had subsided from an annual average price of $2.16 in 1968 to $1.54 in 1971.
Domestically, by 1973, the U.S. economy was in trouble, with high and rising inflation that led to government price controls while the real economy buckled under other economic pressures and the U.S. fiscal deficit rose. Overseas, there were turbulent changes due to the U.S. withdrawal from the Vietnam conflict, the Yom Kippur War, and other issues. The Yom Kippur War led to the first OPEC oil embargo, a fourfold increase in petroleum prices, even higher inflation, and a deep recession in North America, Europe, and Japan. These political and economic issues led investors to stock up on silver, driving the average silver price from $1.54 in 1971 to $4.69 in 1974, with monthly settlement prices rising from $1.31 in November 1971 to $5.43 in May 1974.
Again, it was investment demand that drove monthly average silver prices up 411%, and not fabrication demand or a lack of physical metal.
- Fabrication demand had risen strongly in 1972 and 1973, reaching 551.0 million ounces in 1973. It fell 9.0% to 501.6 million ounces in 1974 as silver prices rose and a global recession limited manufacturing output.
- Total supply of newly refined silver meanwhile had been rising, 13.4% to 379.1 million ounces in 1973 and another 6.7% to 429.8 million ounces in 1974, in part reflecting higher silver prices and severe recessionary and inflationary stresses.
- Global silver mine production rose 2.1% in 1972 to 310.9 million ounces and 2.5% to 317.6 million ounces in 1973, before declining 4.4% to 303.7 million ounces in 1974.
- The big increase in supply was in secondary recovery from scrap. Higher prices and economic recession both encouraged people to turn in old silver jewelry, silverware, statues, and decorative objects to be refined into silver bullion. Silver scrap recovery rose 8.9% from 112.0 million ounces in 1972 to 122.0 million ounces in 1973, and then an enormous 57.4% to 192.0 million ounces in 1974.
Similar patterns of silver investment demand surging, causing spikes in silver prices occurred in 1978 – 1980 and 2005 – 2011.
- Monthly average silver prices rose from $4.44 in August 1977 to $38.25 in January 1980, with intraday silver almost touching $50 per ounce at its peak.
This was driven by broad-based investment demand, again fueled by political unrest, the Soviet invasion of Afghanistan, U.S. hostages in revolutionary Iran, a quadrupling again in petroleum prices, 14% inflation, a spike to 21% in interest rates, and the advent of what was then the deepest postwar recession. Again, these economic and political conditions led investors to buy enormous volumes of silver, driving the price higher.
The next big upward move in silver prices started around the beginning of 2004. Silver prices had been low from around 1990 through 2003, trading most of the time between $3.50 and $5.50 per ounce. Investors meanwhile were selling silver heavily. Net reductions in inventories – mostly held by investors – totaled an estimated 1.6 billion ounces between 1991 and 2005. That kept prices down.
Toward the end of that 15-year period, investors reduced the pace of their metal sales. Some began to think that if they waited to sell, they might get a higher price tomorrow than the price today. That was the same thinking and mechanics that occurred in 1979. By 2005 net investor selling was down to an annual 29.1 million ounces, from a peak of 185 million ounces of net inventory disposals in 1996.
- By 2006, net investment demand had shifted from net selling to net purchases of 72.1 million ounces. The average price of silver that year was $11.61, up from $7.35 in 2005 and $4.60 in 2002.
- Silver prices continued to rise, reaching an intraday peak just below $50 once again at the end of April 2011 and an annual record price of $35.29 that year.
During those six years, investors had added 802.4 million ounces to inventories. They bought another 244.3 million ounces the next year, 2012, before backing off from buying so much silver the following year. As investor purchases declined, from 2012 through 2019, silver prices fell and moved sideways.
It was only when investors increased their net purchases of silver, starting in 2020, that silver prices rose once again.
The evidence is clear that it is investors buying silver that drives silver prices sharply higher.
Yes, But Isn’t Silver Investment Demand At Record Levels Now?
Some readers will have seen reports suggesting that investment demand already is enormously high, at record levels. They may ask which data to rely upon in making their investment decisions. They may ask why, if investment demand is higher than it has ever been as those promotional reports suggest, the price of silver is not even higher than it is already. If CPM is right that higher investment demand will drive silver prices higher, and investment demand is at record levels, why are silver prices not also at record levels? The answer is simple. The data and commentary about record volumes of net silver investment demand circulated by silver promotional groups are wrong. Investment demand is not as high as they suggest.
CPM’s supply and demand statistics and the methodology it uses to analyze the silver market, described earlier in this report, have accurately projected future prices for half a century.
These discrepancies warrant a brief sojourn in this report’s narrative to discuss good silver market research.
The data showing massive deficits have not jived with silver prices. This is because of fundamental flaws, including adding large guesstimates of silver investment demand to fabrication demand in order to show massive deficits that do not exist.
You want to exclude investment demand from market balance calculations for several reasons.
- First, investors buy silver that retains its form of being refined silver, in bars, coins, or medallions. This metal is not used. It remains in silver bullion form, held as a silver investment that can be re-sold on a moment’s notice.
- Second, investors want to invest in commodities the supply of which is tight or limited relative to the actual use of that commodity in fabricated products or consumed as are energy and agricultural commodities. Informed investors want to invest in commodities in which the fundamental balance between supply and demand suggests higher prices. They do not want to invest in commodities for which the idea that prices might rise in the future rests on the supposition that the market is tight expressly because investors already are buying and hoarding that commodity. These informed investors want to know whether a given commodity’s supply is fundamentally tight.
- A third reason for excluding investment in one’s calculation of the fundamental balance between new supply and fabrication demand is that investment demand is fundamentally different from fabrication demand. The rationales for buying to use a commodity as opposed to hoarding it as an investment are starkly different. The price responsiveness is different, too. Fabricators, industrial users, seek to reduce their use of a commodity as the price rises. Investors tend to chase prices, buying more as the price rises and selling back into the market as prices decline.
This fundamental methodology of excluding investment demand from market balances has been used by market research groups in silver and gold as well as all other commodities all along. It still is used by market research groups. It was only in the 1990s that silver and gold promotional organizations began directing their data providers to include investment demand, and that decision was predicated on a desire to portray the silver and gold markets as having tighter supply balances.
Using CPM’s accurate supply, fabrication demand, investment demand, and inventories statistics, the relationships between the various fundamentals and changes in silver prices are quite clear.
The Role Of Silver Fabrication Demand
This report has referred to fabrication demand as playing a supporting role in determining silver price levels and directions. While it is clear from our analysis that investment demand trends are the key set of silver market fundamentals driving prices, it also is clear that trends in fabrication demand for silver play an important role in price determination. CPM’s models of the silver market do not ignore fabrication demand’s effects on price, but they weigh the effects of fabrication demand changes on prices based on the historical quantitative role fabrication demand has demonstrated.
The use of silver in manufacturing products is large, and spread through many industries. There is an auto-correlative nature to fabrication demand: It tends to move in the same direction for periods of time as opposed to varying sharply year to year. It also is heavily related to overall economic conditions.
It also is secretive, as is investment demand and secondary recovery of metal. Industrial users of silver have no economic incentives or regulatory requirements to disclose to the public how much silver they use or other details of their raw material requirements and use. In fact, they have economic incentives to keep such corporate information secret. That said, CPM’s analysts have developed close ties globally with companies that use silver in their products or in manufacturing their products, as well as with the companies that supply the silver to these manufacturers. As with investment demand, our decades-long work in the precious metals industries and markets allows us to estimate fabrication demand with some degree of confidence in our estimates’ accuracy.
There are silver market commentators that speak and write about silver use without access to the data and information CPM has. They often make grandiose statements about how this or that new use will use enormous amounts of silver in the near future. These estimates typically are not grounded in accurate information. Even when there is a kernel of truth in the basic thesis, e.g. silver use in solar panels is growing at a strong rate, the desire to find reasons to expect silver prices to rise sharply often leads to unrealistic estimates of current silver use and future metal requirements.
This has been true recently about silver use in solar panels, for one. Silver market commentators have expectations of far greater future silver use than do companies involved in making solar panels, their components, and the silver that goes into them.
Similarly excessive expectations are common about the amount of silver that might be used in future electric vehicle batteries and connectors, in the electronic components in EVs and conventional vehicles, in military missiles, and a host of other manufactured products.
Such enthusiasm has to be tempered by the economic and financial realities of manufacturing. Fabricators tend to reduce their use of raw materials when the prices rise, either by reducing per-unit content or finding substitutes. New technologies allow wholesale shifts in raw material requirements, which sometimes helps silver demand and sometimes reduces silver use.
All of that said, it is important to understand the role fabrication demand has played in helping to set the stage or platform for silver prices to rise when investors increase their silver demand.
From the end of World War Two into the 1960s, silver use in fabricated products grew sharply. Electrification was increasing, as was refrigeration and air conditioning. All used silver. These changes were accelerated by technological developments made during the war. Silver use in photography rose sharply, as photography moved into a consumer market and was less a realm of professional photographers following technological developments brought forth by the use of photography in reconnaissance during the war. In the post war economic boom, silver use in silverware, decorative household objects, and jewelry also rose, in line with increasing disposable incomes. Silver supplies meanwhile were readily available from the U.S. Treasury at prices in the 66 to 92 cents per ounce range. The Silver Users Association was organized in 1947 to represent to the U.S. government industries that used silver in fabricated products, to lobby to make sure the Treasury’s silver remained available for purchase and use.
This fabrication demand provided a solid base for silver prices. Investors saw these trends, and saw the rapid sales from the U.S. Treasury inventories, and started stacking silver, turning in Silver Certificates and buying bullion bars. Fabrication demand by itself lifted the silver price somewhat, but the big increases in silver prices starting in the late 1950s and culminating in 1978 – 1980 reflected investors buying. Most of these investors did not believe the world was running out of silver, although there were some silver promoters who suggested as much even back then. Most of them just saw a tightening balance between silver supply and fabrication demand, and bought in anticipation of higher prices.
Conclusions
First, history tells us what to think, to expect, in terms of future silver price increases and what may cause them.
Second, it is all about investment demand. Investment demand has always been the main factor behind periodic sharp increases in silver prices.
Third, fabrication plays a supporting role in this drama. Strong, growing fabrication demand for silver provides one of several factors that investors look at in deciding whether to increase their silver purchases and holdings. Inflation, overall economic conditions, political events and trends, international currency market instability or uncertainty also flavor investors’ appetite for silver, historically more so than do trends in fabrication demand.
There is a lot of misinformation in the silver market, about future silver fabrication demand in solar and other industries, about how much metal is in above ground refined inventories and yet-to-be mined reserves and resources. Avoid the siren songs of carnival barkers and shamans.
Think. Don’t Believe.
Silver is a great asset to own now, and in the future. Silver markets also operate as markets. While you can expect prices to peak and then decline, there is still money to be made on the upside. If prices do fall in the years ahead, they probably will not fall too low, to past levels, and may remain high by both historical and current standards. Long term prices should be expected to ‘stay high’ and rise later, as they have in the past.
Silver continues to be a good portfolio diversifier.
This CPM Group Market Commentary was sponsored by Silvercorp, one of the premier silver mining companies. We would like to thank Silvercorp for making this paid CPM Group research available free of charge.
Silvercorp offers investors exposure to silver production through its enhanced leverage to the metal. The Company’s mines have been consistently profitable, further bolstered by rising silver prices.
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