Analyst: Global Move to “Decarbonize and Electrify” Could Boost Silver

As a precious metal often considered a close cousin of gold, silver has the capacity to strengthen as the yellow metal often does in the face of economic and geopolitical uncertainty. It’s a response we’ve seen exhibited by silver many times in the past. Just last year, as the economic fallout from the pandemic was quickly spreading from spring through summer, silver doubled in price from April to August. And against the backdrop of the multi-year 2008 financial crisis, silver soared roughly 400% from 2008 to 2011.

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So silver can exhibit the classic hedge tendencies that have become relatively customary of precious metals. But as a savings asset, silver offers an additional potential benefit not nearly as available in gold: its utility as an essential industrial metal. As the metal boasting the highest level of both thermal and electrical conductivity, silver is indispensable to a wide variety of industries, including the medical, photographic, automotive, and consumer electronics industries. 

We know the outlook for additional, substantial helpings of accommodative monetary and fiscal policy is excellent. Accordingly, silver is poised to thrive as both a perceived inflation hedge and as a metal likely to see higher consumption as the global economy continues to recover.  

But the news looks to be even better for silver – and silver buyers.

You surely know there’s a large and growing worldwide emphasis on climate change and the green energy technologies designed to help mitigate it. Green energy priorities are anticipated to demand an outsized portion of silver’s industrial capacity in the years ahead.

Maria Smirnova, analyst and portfolio manager at Sprott Asset Management, expects three “green” industries in particular to exert a beneficial effect on silver’s price “as global efforts to decarbonize and electrify gather steam”: electric vehicles, solar panel production and 5G cellular technology. Her assessment of the growth potential offered by each suggests a particularly rosy outlook for silver, with positive implications for the metal’s price.

Electric Vehicles

As it is, silver’s superior electrical conductivity has long made it an ideal – even essential – component throughout a variety of automotive applications. The metal is found in circuit-breakers and fuses, relays and switches needed to perform such tasks as start the engine, operate power windows and adjust power seats. In the engine compartment itself, silver can be found in spark plugs, and the metal is a catalyst in the making of ethylene oxide which is used in antifreeze. And that’s just a partial list of how silver’s used in cars.

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Anyway, Smirnova cites in her article data from the Silver Institute that says about 61 million ounces of silver will be used by the automotive industry in 2021. But the anticipated growth in hybrid and battery electric vehicles (BEVs) leads the institute to conclude that the automotive industry’s demand for silver will rise over 40% in the next five years, to around 88 million ounces. Smirnova points to additional data suggesting electric vehicles could demand nearly half of the global silver supply by 2040.    

Solar Panels

The global commitment to clean energy in the years ahead obviously is good news for the solar energy industry. And any news that’s good news for the solar energy industry likely is, in turn, good news for silver.

Silver is a principal component of the photovoltaic (PV) cells that make up solar panels. When sunlight shines down on the cells, the electrons generated are catalyzed into an electric current by the silver, which also then acts to export the current out of the cells for use.

Maria Smirnova informs us that solar panels currently use roughly 100 million ounces of silver annually, but the anticipated massive growth of the solar industry will see that number rise substantially in the years ahead. According to projections she cites from BMO Capital Markets, annual silver consumption by the solar energy industry could rise 85% – to 185 million ounces – within a decade.

5G Cellular Technology

5G is the much-discussed next generation of cellular technology. It is not a green technology, per se. But its ability to massively increase both transmission speed and connectivity like no wireless technology that’s become before it is expected to be an important enabler and facilitator of actual green energy technologies.

Smirnova points out that all technologies – whether rooted in renewable or nonrenewable energy sources – will have to be appropriately configured to respond to 5G. Electronics will get smaller and demand higher energy efficiency – and more silver will be needed.

Smirnova also makes an “oh, by the way” mention that silver watchers shouldn’t miss: 6G is very much on the way, as well, and she expects to see an even higher demand for silver when wireless technology’s next generation makes its debut.

Credible Analysts See Silver’s Price Between $50/Oz. and $100/Oz. in 2021

“The ‘green revolution’ will be highly positive for silver.”

– Maria Smirnova

Toward the end of her article, Smirnova delivers the punchline: “The ‘green revolution’ will be highly positive for silver.”

But just how positive? Smirnova makes no price projections of any kind. Fair enough. In truth, I don’t put a great deal of stock in specific price projections, preferring instead to make decisions about assets based on the relevant fundamentals.

That said, it’s worth noting some well-respected analysts have gone on the record with predictions that suggest silver could see some rather lofty heights in the relatively near term. For example, Danish global investment giant Saxo Bank said in December it expects silver to reach $50 per ounce this year, largely on the strength of a sizable increase in solar panel production. If that forecast holds true, the move would represent an 80% increase over present levels.

Not to be outdone, Citibank is looking for big things from silver this year, as well. Citi recently went public with a silver projection suggesting the metal could reach $50 per ounce by mid-2021. But the bank went even further in its speculation. Calling $50 per ounce “a very realistic target,” Citi went on to say that it’s possible silver could reach $100 per ounce this year.  

There are even more robust silver price projections to be found if one looks well beyond 2021. I’ll leave those alone for now. Even if the reasoning that supports longer-term, multi-year price projections is sound, the numerous variables that can exert influence over an asset become much less predictable the further out you look.

What we can prospectively count on is a generally improved environment for silver in the years ahead. And if silver is capable of increasing 80% or more in 2021, the mind reels at just how high the metal could go when the worldwide green energy push gains even greater momentum.

There is, of course, no way of knowing for sure just how silver will perform in the future. But it’s becoming increasingly difficult to disregard the accumulating body of evidence suggesting silver is poised to ride a potentially historic wave of technological innovation, one poised to significantly alter the manner in which mankind derives energy for life.