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Read the Report›Introduction
Once again, 2022 was a year of sharp contrasts between silver’s fundamentals and institutional investor attitudes towards the metal; while the silver market saw what may well have been the largest deficit on record, professional investors were indifferent or bearish for much of the year.
This is neither unusual or surprising. We have seen similar contrasts often emerge in the history of the silver market. After all, several factors that are positive for institutional investment (for instance financial market turmoil and weak GDP growth) are negative for key demand segments, such as industrial, jewelry and silverware. Crucially, institutional investment often dominates price action, which in turn affects those price elastic elements of demand. Last but not least, the contrast between institutional activity and supply- demand fundamentals is arguably necessary for the silver market to function. After all, deficits need to be filled by metal sold by professional investors, while surpluses need to be absorbed by them.
In 2022, a key driver of this discrepancy was rising and persistent inflation. In terms of physical demand, it encouraged strong bar and coin purchases by retail investors, seeking to protect their wealth from an effective fiat currency devaluation. In contrast, inflation pushed institutional investors away from silver, as it fueled policy rate hikes by the Fed and, just as importantly, market expectations of a continued hawkish stance, driving US yields higher.
The downward pressure on silver prices from this further boosted physical demand. This was perhaps most pronounced in India, where on top of already exceptionally strong demand, low prices encouraged the entire supply chain to replenish its stocks. This followed two pandemic-hit years of inventory draw-downs. There were other, price agnostic, drivers of demand growth last year. Most notable among these was the strength of industrial fabrication,
in large part linked to the robust solar industry, but also reflecting a post- pandemic recovery in a number of other markets. Indeed, were it not for China’s zero-COVID policies, global silver demand would have likely been even greater than the all-time high of 1,242.4Moz (38,643t) it realized in 2022.
A lack of supply gains was another factor contributing to last year’s deficit.
Limited organic growth, project delays and disruptions resulted in a marginal 0 decline in mine production while recycling barely rose.
