Historical Demand for Silver: Its Rise and Market Dynamics

Record Demand and Price Increases in the Silver Market

Gold has shown a dramatic rise this year due to the safe-haven asset preference stemming from Russia’s war with Ukraine and the U.S. government's unconventional economic policies. However, the precious metal currently capturing investors' attention is silver.

The tight supply of this precious metal has led to a 70% increase in the London market this year, drawing attention. Meanwhile, in the same period, gold prices increased by 55%. Both metals attract significant interest from investors during times of political turmoil, inflation, and currency weakness. However, unlike gold, silver continues to serve as both a rare and valuable component for many products.

Silver Market Tightness and Its Causes

Silver is affected by a wide range of events, and its market price is influenced by production cycles, interest rates, and changes in renewable energy policies. The increase in industrial demand with the rising global economy has pushed silver prices higher, while during periods of stagnation, investors step in as alternative buyers.

The market dynamics of silver are narrower compared to gold. According to data from the London Bullion Market Association (LBMA), there are 790 million ounces of silver and 284 million ounces of gold. However, the value of silver per weight is significantly lower; while the total value of silver stock in London is approximately 40 billion dollars, gold's value stands at 1.1 trillion dollars. This situation is one of the reasons for the tightening of supply affecting the lending and delivery of silver.

Explosion of Silver Demand in India

As India enters the festival season, there has been a 100% increase in silver purchases. Jewelers are rushing to replenish their stocks in response to rising prices, while buyers have found themselves paying a premium over global prices. This situation is leading to more withdrawals of silver metal from Western vaults and deepening the supply squeeze.

Future Supply and Market Balancing

Global silver mine production is under pressure due to declining ore quality and limited new project developments. Major producers like Mexico, Peru, and China are facing various challenges. This situation will impact the market balance depending on how quickly new supply can be brought to market to permanently address the existing supply gap.