Industrial demand can drive silver prices to $30 an ounce - Bank of America
(Kitco News) - Rising momentum in the U.S. dollar and the resilient uptrend in bond yields are taking their toll on precious metals, particularly with silver prices seeing weakness, falling more than 2% on the day.
However, one bank is not giving up on the precious metal as they expect rising industrial demand to keep the fundamental supply and demand picture relatively balanced through 2021. In a report published Monday, commodity analysts at Bank of America said that they continue to see silver prices averaging the year around $29.28 an ounce.
The bullish outlook comes as the silver market sees a bearish technical selloff. While silver is off its session lows, the price remains below its 200-day moving average. May silver futures last traded at $24.735 an ounce, down 1.5% on the day.
The bank said its positive outlook for silver is based on what they see as a modest supply deficit of 281 million ounces, a significant improvement from last year's deficit of more than four billion ounces.
"While we expect a rebound in supply this year, output should remain below the peak levels seen a short while back, also because the project pipeline is relatively empty," the analysts said.
While investment demand could see a 21% decline from the historic levels seen last year, Bank of America expects the precious metal's industrial demand to be an important factor in 2021.
As the global economy starts to recover from the COVID-19 pandemic, Bank of America expects that industrial demand for silver will increase 9% this year. The two critical sectors to watch are renewable energy and automotive.
Although the amount of silver used in solar panels has gone down because of thrifting, the analysts said that this is still outweighed by the sheer demand increasing for solar energy.
"As governments decarbonize economies, solar panels have become more important globally. In the U.S., solar and wind energy are set to be gaining market share in the coming years under our base case scenario, which could be accelerated, if President Biden reduces emission from the power sector," the analysts said.
Along with the growing demand for clean energy, the auto sector's electrification is also expected to increase silver demand, BoA analysts said.
"Given silver is such an effective metal in conducting electricity, the metal is popular with the automotive industry," the analysts said. "[Electric vehicles (EVs)] and [Hybrid election vehicles (HEVs)] run on electricity, they have much higher silver loadings. It is at the same time noteworthy that silver content comes in a range for cars with a combustion engine; in fact, mild-hybrid vehicles, which will likely remain a mainstay of the auto industry, tend to have higher silver loadings than vehicles with a combustion engine alone."