Silver Price Outlook for 2023

Silver rallied by 30% in the last three months of 2022. Some analysts expect this could be the beginning of a major bull market. How realistic are these lustrous predictions? Let’s take a look at just what factors influence the price of silver in the year to come.

Demand-Side Factors

For silver to rally over the next year, demand must continue to grow relative to supply. There are three major drivers of demand for physical silver; investment, industry, and jewelry/silverware.

Investment

Silver is an excellent inflation hedge, and many investors own it for this reason. Inflation has been at historic highs over the past year. Even after aggressive rate hikes by central banks around the world, inflation is still at the highest level since the 1980’s.

Silver also appears undervalued relative to other commodities. Commodity prices across the board have gone through the roof since the COVID crisis and the war in Ukraine. Silver is mysteriously lagging behind all of this action. Many in the silver industry believe this is due to manipulation.

The manipulators are accumulating physical silver while depressing prices with paper silver derivatives. When they decide to pull the plug on this manipulation, prices will skyrocket, making them a tidy profit. Of course, this is just speculation, but it’s one of the best explanations for silver’s strangely depressed prices.

Investment in 2022 was also driven by the geopolitical climate. In times of war, people trust physical gold and silver more than paper investments, driving demand. With global recession looming as central banks push up interest rates, there may be more such instability on the horizon in 2023.

Industry

Industrial demand for silver hit an all-time high in 2022 at 539 million ounces, a 5% increase from 2021.

Many analysts expect that rising interest rates could cause a recession. Recessions usually come along with decreased industrial demand which is bearish for silver prices. However, one of the major sources of silver demand is the use of silver in the manufacturing of electric vehicles. Even though vehicle sales overall are down, electric vehicle sales are up.

Governments are also planning stimulus packages as the economy slows, and renewable technologies are a major part of these packages. Governments around the world continue to invest in solar technology which is one of the biggest consumers of industrial silver. Since the Biden administration and European governments are big on this kind of tech, we can expect continued government spending in this area in 2023.

Governments (even less ecologically-minded ones) worldwide are also investing in 5G cellular technology which requires silver.

Jewelry and Silverware

In 2022 demand for silver jewelry increased by approximately 29%, and demand for silverware increased by 72%. Most of this demand is coming from the rapidly growing cultural demand for silver.

Much of this demand is actually driven by inflation as well. Jewelry is a traditional method of saving in India, and in addition to high inflation, a weak rupee lost over 10% against the dollar in 2022. This demand is also driven by a widespread perception that silver is undervalued.

Jewelry is also very culturally important in India, but the younger generation is now opting for silver rather than gold because of escalating gold prices.

Supply-Side Factors

The main factor affecting the silver supply is mining output which did not see much growth in 2022. It’s expected that any increases in production in 2023 will not be enough to keep up with demand. 

High inflation also means that many of the supplies needed in mining have increased in cost. Higher mining costs mean mining companies will scale down operations which further constricts supply. 

A Growing Physical Silver Deficit

With persistently low silver prices and rising commodity prices, the biggest physical silver deficit in decades is looming. Demand for silver surged by approximately 16% in 2022, while production increased by approximately 1%. 

The deficit in 2021 was about 41 million ounces. That figure increased to 194 million ounces in 2022.

Comex silver vaults have seen continuous outflows for the last 5 months, declining approximately 63.4% in the last year. If outflows continue at this pace, inventory could be exhausted within 6 months. 

The situation is similar in England where the supply of physical silver in the London Bullion Market Association (LBMA) vaults declined throughout 2022.

As these trends continue in 2023, there will be increased pressure on the price of silver from diminishing supply.

A Perfect Storm?!!

Multiple factors are converging that are setting the stage for a major silver price breakout in 2023. Stubbornly high inflation and fears of recession combined with a historic physical silver shortage signal the beginning of a bull market. 

The global economic conditions are quite similar to the “stagflation” of the early 1980’s when silver hit $35. That’s $127 in 2022 dollars, or $966 using the old method of calculation!

2023 will see a new wave of stagnation with rising interest rates dampening economic activity and persistently high inflation.  

With higher inflation and higher interest rates, “stagflation” appears to be the most likely scenario going into 2023. Central banks are not going to let inflation get too out of control, but at the same time, they can’t eliminate it entirely without wrecking the world economies. 

This will keep industrial demand for silver high as they dilute their currency. At the moment, government bond yields are not keeping up with inflation which will leave investors looking for alternatives. 

As demand for physical silver keeps up or intensifies, the day of reckoning when the market for paper silver collapses in the face of declining physical silver inventories. This will mean dramatically higher silver prices.

Silver analysts are bullish for 2023, with more conservative estimates ranging from around $25 to $35 an ounce. Others, like Keith Neumeyer, CEO of First Majestic Silver, are more optimistic and expect 2023 to be the year silver finally breaks into the triple digits. Of course, there are no guarantees this will happen, but the conditions for such a move are ripe. 

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