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Silver prices will continue to suffer in 2023 but shine brightly next year - Capital Economics

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(Kitco News) - After hitting a five-week high, the silver market has been unable to hold gains above $25 an ounce and one research firm, while maintaining its long-term bullish outlook, said that it sees further weakness in the grey metal heading into year-end.

In his latest price forecast, Kieran Tompkins, commodities economist at Capital Economics, warned investors that with silver prices trading roughly neutral for the year, there is potential for prices to fall back to support at $22.50 an ounce. The outlook comes as silver prices currently trade at $24.845 an ounce, down 1% on the day. The precious metal has given up most of its gains so far this week.

Tompkins said that the most significant factor impacting silver prices remains the U.S. dollar, and the British-based research firm expects the value of the USD to continue to rise. 

"In short, we think there is further scope for interest rate differentials to extend the US dollar's recent rally over the rest of this year, weighing on the silver price," he wrote in the report.

At the same time, Thompkins said that China's growing economic turmoil could weaken silver jewelry demand and soft electronic sales will dampen industrial demand for the precious metal. Looking at the global trend, he added that weaker economic growth paints a bleak picture for silver's industrial market.

"The global electronics PMI suggests that there has been a renewed downturn in the industry," he said. "Given the slowdown in economic activity we forecast in advanced economies, we suspect activity in the electronics sector will continue to deteriorate in the coming months."

However, looking past this year, Thompkins said that he expects silver's fortunes to improve in the new year. He said he sees prices ending next year at around $25 an ounce.

Thompkins said that he expects a shift in U.S. monetary policy as a recession bites will increase investment demand for silver, which has been lackluster through 2023.

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"We forecast the Fed to begin cutting interest rates in early-2024, ahead of most other major central banks. This should give a boost to investment demand for silver as falling Treasury yields over this period lower the opportunity cost of investing in silver," he said. "In addition, shifting interest rate differentials against the U.S. dollar, coupled with improving risk sentiment as economic slowdowns give way to recoveries, should boost the silver price via a weakening in the greenback."

At the same time, Thompkins said that the solar power sector and growing demand for photovoltaic solar panels will drive industrial demand for silver in the new year.

"Demand for silver from photovoltaics production will only go from strength to strength as the green transition kicks into gear. As such, we think silver demand for photovoltaics will account for most of the roughly 70m increase in demand for silver we forecast in 2024," he said.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.