Silver's potential rally: can it match gold's performance in 2024?

While gold has soared to new heights in 2024, silver has yet to revisit its former peaks. Silver hit $50 in 1980 and 2011, and $30 in 2022, but it hasn't reached those levels recently. In comparison, gold reached $850 in 1980, $1930 in 2011, and an impressive $2430 in 2024. The question now is, can silver catch up and dazzle investors once more? Will Silver shine again?

From a Supply and Demand Perspective

Before 2022, supply and demand for silver were mostly balanced. However, after 2021, there was an increase in the use of silver in AI chips, solar panels, electric cars, etc., resulting in demand exceeding supply by around 20%.

Industrial demand

Silver is encountering new demand opportunities beyond its traditional uses, notably in its expanding role within the energy transition. As artificial intelligence (AI) advances, silver is becoming an indispensable material in various sectors, including transportation, nanotechnology, biotechnology, healthcare, consumer wearables, computing, and energy in data centres. While these industrial applications should support a rise in silver prices, they are unlikely to cause explosive growth. Typically, explosive surges in price are driven by investment and the short squeezing of positions.

Investment demand

The recent spike in silver prices has not yet triggered the anticipated investment demand. However, once the price breaks above the $30 mark—a major resistance level before reaching $50—it is likely to spur investment interest.

Physical investment in silver fell by almost a third last year to a three-year low of 243.1 million ounces (7,562 tonnes). This decline was particularly sharp in Germany, where it dropped by 73% following a VAT increase at the start of 2023. If industrial demand keeps silver prices stable and rising slowly, investment funds are likely to be attracted, potentially accelerating the price increase.

Additionally, with the European Central Bank and the Bank of England likely to cut interest rates around likely to cut interest rate in second half, and the Federal Reserve potentially slowing the pace of Quantitative Tightening with a possible rate cut later this year, this added liquidity will boost investment demand and subsequently, silver prices.

In 2023, the production costs for mining silver increased significantly. The total cash costs (TCC) and all-in sustaining costs (AISC) for primary silver mining escalated due to increased spending on key input costs and a decrease in silver production. TCC jumped by 61% to a ten-year high of $8.38 per ounce, and AISC rose by 25% to $17.18 per ounce, the highest recorded since our data collection began in 2010. This cost analysis accounts for approximately 75% of the primary silver mine supply, with a focus on operations that primarily derive their revenue from silver throughout the mine’s lifespan. (Source: Silver Institute)

Diving Deeper into Silver's Story

Compared to gold, silver has a much smaller market cap, making it easier to corner the market. If you have traded silver for a significant period, you're likely familiar with the story of the Hunt brothers.

Hunt Brothers

In the early 1970s, Nelson Bunker Hunt and William Herbert Hunt started buying silver for less than $2 per ounce. After inheriting a fortune from their father in 1974, they used this capital to amass about 195 million ounces of silver, nearly a third of the global supply, by the late 1970s. This drove the price up significantly, affecting industries and consumers alike. Silver prices peaked at $48.70 per ounce in 1980, with the Hunt brothers' fortune valued at around $10 billion at its peak.

In response to soaring silver prices driven by the Hunt brothers, COMEX introduced Silver Rule 7 in January 1980, placing strict limits on margin buying. This led to a dramatic drop in silver prices on March 27, 1980, known as Silver Thursday, when prices fell from $21.62 to $10.80 per ounce. Unable to meet margin calls, the Hunt brothers' assets plummeted, turning a $7 billion value into a $1.7 billion debt. (source: apmex)

JP Morgan case

In 2010, JPMorgan Chase & Co and HSBC Holdings Plc were sued by investors who accused them of conspiring to manipulate silver prices. However, in 2014, a panel from the 2nd Circuit Court found insufficient evidence to prove that JPMorgan's large and uneconomical short positions were intended for price manipulation or involved conspiring with brokers. The court acknowledged JPMorgan's significant short position but noted that this alone does not imply intent to manipulate the market.However, the ruling officially confirmed that JPMorgan held a large quantity of short positions. (source: yahoo)

Technical analysis

The weekly chart signals a cup and handle pattern, indicating a long-term bullish continuation pattern where the handle represents a temporary pause before a potential breakout to higher levels. For silver, a break above the $30 level would indicate a potential test of the previous high of $35 and potential of eventually reaching $50, which is in sight due to the increasing industrial use of silver and improving investment sentiment following a global liquidity surge. This pattern suggests a long-term bullish trend reversal, making it a significant point of interest for investors and traders.

Written by: Bruce Yam?

Disclaimer:

The information contained within this article is for educational purposes only and is not intended as financial or investment advice.

This information is considered accurate and correct at the date of publication. Changes in circumstances after the time of publication may impact the accuracy of the information.

The performance figures quoted refer to the past, and past performance is not a guarantee of future performance or a reliable guide to future performance.

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