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Silver demand to hit 8-year highs, but what about prices? The Silver Institute weighs in

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(Kitco News) Global demand for silver will rise to eight-year highs in 2021 on surging interest from industrial and physical markets, said The Silver Institute in a report on Wednesday.

"Against an improving macroeconomic backdrop, the main segments of silver demand are expected to rise this year," according to the report. "This reflects expected gains in the critical segments of industrial demand, physical investment, jewelry, and silverware fabrication."

Total demand is expected to reach 1.025 billion ounces, rising 11% and marking an eight-year high.

Physical investment alone is projected to reach a six-year high of 257 million ounces on more demand for silver coins and bars. Silver jewelry demand is looking to recover but will remain below pre-COVID level, the report noted.

Industrial demand is forecasted to rise to a four-year high of 510 million ounces, 9% higher compared to 2020.

"Demand from the electrical and electronics sector is poised to account for the bulk of the gains. With the growing penetration of 5G technology in consumer electronics, this sector is expected to drive notable gains for silver offtake," the report said. "The PV sector staged a strong recovery in the second half of 2020, and this momentum should carry through 2021."

The demand from the PV sector is estimated to be around 105 million ounces this year. "The sector will benefit from a growing number of countries that are installing new PV capacity."

On the other hand, silver's mine supply is likely to see double-digit gains as it rises to 866 million ounces in 2021 after the pandemic-affected 2020 level, the report highlighted. This total would mark the highest level since 2016.

"Most mines affected by COVID restrictions have re-started, with the recovery also benefiting from the re-opening of key mines affected by strike actions. Growth will also be driven by higher output from primary silver mines and by new projects in Mexico and Australia," The Silver Institute said.

Scrap supply is also projected to increase in light of higher prices.

Overall, the silver market will see a physical surplus in 2021; however, it will be the lowest since 2015's deficit, the report added.

The main risk to the demand outlook is slower-than-expected economic recovery, which would put pressure on base metals prices and trigger a reduced exposure in silver as well, The Silver Institute pointed out.

Silver is also projected to outperform gold this year, with prices hitting seven-year highs of $30 on an annual average basis.

"The gold:silver ratio is expected to fall from an annual average of 86 in 2020 to around 68 in 2021. This will be even more noteworthy given that the ratio touched a record daily high of 127 in March 2020," the report said.

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