The extraordinary events of 2020 have had a profound effect on virtually every international trade and financial market and silver bullion or physical has been no exception.
The fundamentals of silver bullion supply and demand, investment, trade flows and inventories have all experienced sensational fluctuations over the past 18 months and in the future, the consequences of the pandemic are expected to continue to influence demand for silver bullion for some time to come.
The impact of the pandemic on most of the elements influencing supply and physical demand has been relatively simple. Several key mining countries have been hit hard by restrictions and lockdowns. As a result, the global supply of silver has declined. This was, however, offset by losses in most segments of the physical demand for silver, which suffered from restrictions on economic activity as well as lower consumer sentiment and/or loss of revenue. This resulted in 2020 as the largest surplus in the silver market since at least 2010.
Despite the short-term headwinds resulting from higher bond yields and a strengthening dollar, the macroeconomic environment is expected to remain favourable for gold and, ultimately, also benefit silver investments.
Specifically, monetary and fiscal policies are expected to remain expansionary for the foreseeable future, even if inflationary pressures increase. This in turn will mean that real yields are expected to remain low or negative, which will limit the cost of holding precious metals
It's important to know that stock markets are at record highs and valuations seem increasinglytight. Risingyields will continue to pose a risk to equity markets and cause a rotation towards precious metals.
Some investors also believe that extreme risks abound as we move away from today's extraordinary fiscal and monetary positions at a time of record debt accumulation. While gold will be the main beneficiary of these factors, silver should also benefit from healthy interest from investors.
Silver has many industrial uses and over the past five years the industry accounted for more than half of the world's annual demand for physical silver.
This means that economic growth can affect silver prices much more than it affects gold. Indeed, only 10 to 15% of the annual demand for gold in the world is industrial, with the rest going to jewelry and investment.
Due to the physical strength, brilliance, malleability and ductility of silver (it can be crushed or shaped), silver has been used in jewelry, tableware and in the arts for thousands of years.
Manufacturers use the conductivity of silver (the highest of all elements for electricity and heat) as well as its sensitivity to light and antibacterial qualities.
Today, silver is irreplaceable in many industries: batteries, dentistry, glass coatings, LED chips, medicine, nuclear reactors, photography, photovoltaic (or solar) energy, RFID chips (to track packages or shipments worldwide), semiconductors, touchscreens, water purification, wood preservatives, and many other industrial uses. The Washington-based silver institute calls it "the Indispensable Element".
The biggest consumers of silver for industrial applications over the past decade have been the United States, Canada, China, India, Japan, South Korea, Germany and Russia. During this period, the demand for silver from older industries faded, being replaced by new technological uses.
Here we look at three major industrial uses of silver – photography, solar energy and medical – and how they have evolved.
Photography was the No. 1 end use of silver, using silver nitrate to create light-sensitive halide crystals. This sector includes consumer photography, graphic arts and radiography (X-rays), both in medicine and in the industrial inspection of heavy machinery.
Photographic demand for silver peaked in 1999, accounting for 25% of total production. The U.S. film market alone used more than 93 million ounces of silver that year, or more than one in ten ounces sold worldwide. In five years, however, photographic demand has fallen below 20% of total demand, and it has fallen to 3% in 2020.
The growth of digital photography has played the biggest role in this decline. Still photography used in X-rays remains a large consumer of silver, but total photographic demand has contracted by 90% by weight compared to its peak.
The sensitivity of silver to light has found rapidly growing use in the photovoltaic industry, or solar energy. By using silver as a conductive ink, photovoltaic cells transform sunlight into electricity.
Photovoltaic use first had an impact on silver demand in 2000, just as photographic use was beginning to decline, with the sector consuming 1 million ounces that year. It wasn't even a tenth of the amount used by the electronics industry. In 2008, the photovoltaic sector consumed 19 million ounces per year, with the main government subsidies supporting the growth of the industry in the United States, Western Europe and particularly China.
Photovoltaic demand for silver has exploded thanks to state subsidies, increasing at an annual rate of 50% and beginning to fill the void left by the decline of the photographic industry. The fall in these subsidies following the 2008 financial crisis did not prevent the doubling of silver prices in 2011 to even $50 an ounce – this price exceeded all-time high dating back to 1980.
As a result of this surge in prices, industrial demand for silver declined over the following three years. Higher prices meant that new technologies were needed to use less silver in producing the same amount of solar energy. These new technologies have reduced the amount of silver needed for a solar cell today by almost 80% compared to the beginning of the 21st century. Thus, despite an increase in the total production of solar panels, the US photovoltaic and silver demand has fallen in recent years. In Europe, these previous government subsidies have led to huge overproduction, and the industry's excess capacity has seen many solar cell manufacturers go bankrupt, also affected by competition from China.
Nevertheless, global photovoltaic demand for silver has grown at an annual rate of more than 10% over the past two decades. As a result, today, the consumption of silver by the photovoltaic industry accounts for 10% of total demand.
Of all the chemical elements, silver has the most powerful antibacterial action with the least toxicity to animal cells. Because like other, more expensive precious metals, it interrupts the ability of bacterial cells to form certain chemical bonds essential to their survival. But cells in humans and other animals have thicker walls and are therefore not disturbed.
When added to water, silver releases silver ions. These ions also kill and prevent biological growth, again disabling the metabolism of germs and hindering their membrane functions. The value of these properties has been known and used for centuries.
Ancient Phoenicians, for example, discovered that they could keep water and other liquids fresh by storing them in silver-covered bottles. American pioneers 3'000 years later prevented dysentery, colds and flu by putting silver dollars in milk bottles. Silver biocides are now found in hospital water systems, catheters, furniture and almost every tool in the operating room. Silver-copper ionization has also been approved as a primary treatment for the long-term control of legionella in air cooling systems.
Silver nitrate was used in the late 1800s to cure newborns of certain eye infections, and doctors found that wounds healed faster with silver dressings. The metal was used in sutures for surgical wounds and to heal ulcers – a use that continues today, with silver-encrusted bandages that have proven particularly effective in healing the wounds of burn victims.
During the 1920s, more than 3 million prescriptions a year were written in the United States for drugs containing silver. Due to the introduction of penicillin in the 1940s, antibiotics became the standard treatment for bacterial infections, and this use of silver decreased. But new scientific research has since led to a further expansion in the medical industry's use of silver.
Nanotechnology uses silver as an antimicrobial, reducing the metal into particles measured in nanometers (billionths of a meter). This nano-silver acts as a catalyst for oxidation, generating oxygen from air or water that destroys the cell wall membranes of single-celled bacteria. Because it only "activates" this reaction, it does not pollute the surrounding environment.
In short, the use of silver metal is no longer limited to its historical uses as a currency of exchange, jewelry and investment, but much more to industrial and technological uses that account today for more than half of annual demand. This demand will play an increasingly important role in the direction of prices in the long run.
The current optimism about the economic recovery also means that silver will benefit from the race to industrial metals. This is related to the growing interest in fiscal stimulus focused on green energy. While such developments are unlikely to lead to a significant shift in overall silver fundamentals in the short term, they could continue to stoke investor interest in the metal.
This means that silver is likely to make, at the least, equal game or even better than gold in term of performance in the coming years. What if silver was the investment of the year 2022?