Improving industrial demand should help silver prices recover in 2021 - Bank of America
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(Kitco News) - Silver prices could continue to struggle this year as the COVID-19 pandemic weighs on industrial demand; however, the precious metal ’s future looks bright as industrial sector recovers faster from the impact of the global pandemic, according to analysts at Bank of America.
In an updated forecast published last month the bank sees silver prices averaging this year around $16.87 an ounce, up from the previous forecast of $16.60 an ounce. However, looking to 2021 the price is expected to average around $23 an ounce for the year, up from the previous estimate of $22.50 an ounce.
In a report Friday, the bank said that it sees silver prices trading around $18 through 2024. July silver futures last traded at $17.37 an ounce, down 0.64% on the day.
In the report, the analysts said that the biggest factor for silver remains industrial demand. They noted that because of the global lockdown pressures, caused by the COVID-19 pandemic, industrial demand for silver could fall to its lowest level since 2004.
However, analysts added that they see the current factors weighing on demand as short-term issues.
“While the unfolding Covid-19 health emergency has had a severe impact on the global economy, we believe that weak GDP growth figures come with a caveat, which means that industrial offtake could rebound more quickly than some of the weak sectoral growth data suggests,” the analysts said.
The analysts added that a critical sector key to silver’s recovery is the renewable energy sector.
“The rising importance of alternative energies for silver usage matters because uncertainty has risen over the impact the current health emergency may have on tackling climate change. One argument goes that governments will primarily focus on fixing domestic economies, implying that tackling climate change may not be a priority,” the analysts said. “Yet, the experience of Covid-19 and its cost could also suggest that governments may be more willing to work together to protect the environment.”
Another important sector for silver is evolving 5-G technology.
“With the rollout of 5G in the coming years, silver's role in the electronic applications used in 5G is forecast to rise significantly, to approximately 500T by 2025 and as much as 715T by 2030, still small, but not insignificant,” the analysts said.
The analysts noted that investment demand has been healthy even if it hasn’t been able to compensate for weak industrial demand.
“In our view, this uptick was influenced by many of the same concerns that have attracted investors to gold, where market participants have been apprehensive over the size of fiscal deficits, which are being been backstopped by central banks. That monetisation of debt, including the potential implications for inflation, makes hard assets like silver attractive,” the analysts said.