Over the past few months, physical silver has been experiencing a shortage in supply. What is more, this has also affected the future markets and, consequently, its prices. There is no certainty on how high prices will go, but one thing is for sure: silver stocks will continue to fall. Why is this happening right now? There are many factors to take into account, and you will learn about them in this article.
Different reasons cause a shortage of silver. On the one hand, supply is lower than demand. Besides, the industrial silver markets are constantly growing. The need for silver supplies causes prices to go up. This price rise makes silver an even more attractive investment, thus making demand go up.
The silver shortage has its reasons and consequences. While spot prices tend to go up, the demand for precious metals also increases. Suppliers are not meeting this demand, and stock figures continue to fall. Besides, previously applied measures to control silver spot prices are not an option nowadays. Keep on reading to learn more about the reasons for the silver shortage and its consequences.
What Causes A Shortage of Silver?
Many factors have occurred altogether to make silver supplies run significantly low in little time. After a long time of inactivity during 2020’s lockdown in the world, markets have gradually reopened. An unexpected demand from investors, collectors, and manufacturers that use silver for industrial purposes put the supply-demand system into work. To analyse this situation profoundly, we find ourselves in need of separating causes into different sections.
A Long-lasting Misconception of Supply
Year after year, demand has significantly overcome supply in the silver market. The biggest markets are those of jewellery and technology, the latter experiencing a fast growth throughout time. Silver is present in connectivity and parts that need silver-quality conditions in this industry, such as microchips. As the industry grows, demand does too. But this has not been compensated by mining.
“There is an acute shortage of physical silver available at this time. The US Mint is out of the Silver Eagles…[and] silver bars in the 100-ounce size are unavailable at this time. In 30 years, I have never seen that.” Van Simmons, president of David Hall Rare Coins
Mining has been in charge of shortening the gap between supply and demand for years. But there is a difference nowadays with what used to be 50 or 60 years ago. Back then, and even though the supply-demand ratio worked at similar levels (less technology demand, but more intended for jewellery, and less mining), reserves were much more significant than today. Thus, the shortage was far from happening.
Industrial Silver: A Cause for Silver Shortage
As we mentioned before, industrial use of silver is one of the leading causes of the shortage of silver. This constant demand for the metal is not a surprise, so mints and governments know how much silver satisfies the need. However, this industrial use has become larger throughout time, which leaves little space for any change in the markets that may increase demands for other purposes. That is why some events as inflation or the loss of power of leading worldwide currencies impact so powerfully on silver supplies.
Industrial Uses of Silver
Now that we know that industrial use of silver is a cause for the shortage of silver supply, we can identify them to better understand what we mean by this. Silver is present in many things we use every day, even though we may not be aware of it. It does not matter if the amount of silver needed to produce specific products is as short as a gram. Given the number of units, this translates to a demand for enormous amounts of silver. Some of the industries that regularly use silver are:
- Photography: The photography industry uses silver nitrate in halide crystals. Even though nowadays most cameras are digital, the production of films has not come to a complete halt. However, the digital era caused photography demands for silver to decrease about 70%.
- Solar Energy Cells: Silver is susceptible to light. The photovoltaic (or solar energy) industry is a constant and increasing demand for silver. The rapid growth of the photovoltaic industry in the year 2000 meant a huge demand for silver. These numbers have decreased throughout time, given the advances in technology, thus making silver less necessary than before.
- Medicine: Contrary to the previous two examples, the medical industry demand for silver is in constant growth. Silver nitrate (the same one used for halide crystals in the photography industry) is necessary for X-ray machines. Besides, the chemical reaction of silver when in contact with water is helpful for medicinal purposes. As a plus, silver has antibacterial characteristics, which are essential to the industry.
- Automotive: The automotive industry consumes more than 30 million ounces of silver every year. The metal is present in the coating of contacts and membrane switches, for example. The device that generates heat to melt ice or keep glasses fog-free use silver-ceramic lines as well.
- Electronics: According to the Silver Institute, anything that has an on-off switch most probably contains silver. Its electrical conductivity is a tremendous advantage for connections of any kind.
There are many more products of everyday use that require a silver composition—for example, water purification, jewellery, and tableware.
A Shortage of Silver Caused By Investments
Along with industrial use, silver investments have also played a significant role in the shortage of silver. With the apparition of the pandemic, 2020 was not a good year regarding the precious metal market. Worldwide lockdowns, restrictions, and economic crises were factors that had a significant influence on investments and collecting. This situation meant a considerable decrease in demand, which mainly came from the industrial market and was pretty much under control given the certainties this market has instead of the collectors’ market.
Given its volatility, investors and collectors have increased their demand in 2021. The sudden change is due to inflation rates, which created doubts about powerful currencies, such as the US dollar. Inflation rates, profit rates, and an uncertain forecast on how this situation would develop forced people to change the course of their investments. Silver has become more potent than the past 20 years, which made it attractive to investors and anyone looking for a more significant Return on Investment (ROI)
What Are The Most Popular Silver Investments?
Due to the reasons stated above, silver has become an increasing asset for investments. Its volatility and constant presence in the markets, when compared to others, make silver investments a trustworthy trade. Silver is present in many investment options and, as it is widely cheaper than gold, it is accessible for both big and small traders or entrepreneurs.
Even though the demand levels may be significantly lower than that of industrial use, private consumption becomes another cause for the shortage of silver. Silver assets include different manufactured products that enable trading and collecting. Here is a list of the most popular silver investments:
- Silver Coins: The silver coin industry constantly manufactures items for people to include in their collections or investments. This growing market provides new coin series that feature or commemorate historical events or attractive and collectable themes.
- Silver Bars: Silver bars are primarily present in investments rather than collections. As currencies lose strength, silver appears to be the most constant and profitable asset to face inflation rates.
- Jewellery: Silver jewellery is not only meant to wear. Many investors recur to jewellery as a means of stocking a valuable asset. Investing in silver jewellery is a profitable trade because other factors, such as antiquity, also affect their value.
Will There Be a Governmental Measure to Stop Silver’s Growth?
As long as governments do not find a way to control the growth of “white metal” value, as has happened before, the silver spot price will continue to rise. Their main problem nowadays is that measures back then are not available now. So roughly, silver may hit record levels between 2021 and 2022.
This process may seem like a vicious cycle since the silver supply will rarely meet demand. Silver demand continues to rise given industrial and private use, and thus prices keep in this constant way upwards. What is more, future markets prices keep their rising tendency -although consistently below the physical market-. Although forecasts hold uncertainty, the image we get is that this will continue for a significant time.
Does The Shortage of Silver Mean It Is The Best Moment To Invest?
As it happens with every type of investment, silver moments when investing is more profitable. However, being a constantly present asset in all markets, it is not easy to find a moment in which investing in silver is not worthwhile. Of course, as prices go up, profit will be lower should anything make them fall in the future. However, many online shops offer pretty good buy-back prices or dealer direct items that fluctuate with the markets.
If you plan to invest in silver and feel you may need some guidance, do not hesitate to contact us. We will be happy to help you out with any concerns you may have. You can also subscribe to our newsletter and follow us on our social media and YouTube channel to receive daily news and tips on silver and gold investments. We also offer the possibility to generate passive incomes with your assets. If interested, you can use any of our contact channels to learn more about it.