Silver to Rise on Improved Global Economic Prospects

Silver continues to rise on improved global economic prospects, which saw demand for spot metals increase. A combination of fundamental factors including a dovish Fed, low real yields, and rising inflation expectations have helped support silver. Additionally, the precious metal’s central role in the manufacturing of solar panels promises to boost the metal in the long term. Silver has further upside potential, due to Biden’s green stimulus plan to restructure the US economy towards the reduction of carbon emissions and the increase of solar energy. This will require the construction of 500 million solar panels over the next five years, which will increase demand for the precious metal due to its use in photovoltaics.

Joe Biden’s Solar Plans will Boost Silver Demand

A less well-known driver for silver, but posing significant potential for the precious metal, is its use in measures against global warming. Silver, which has enjoyed a six-year high due to growing demand as a safe haven and limited supply, may be poised for a big additional boost due to its use in solar panels.

Many analysts have underlined the potential demand for the precious metal as governments look to boost economic growth and control climate change by investing in clean-energy technologies. This has been the case with president-elect Joe Biden, who earlier this summer had outlined plans for a “carbon pollution-free power sector by 2035” which will involve the use of renewable wind, solar power and electricity storage. The movement towards renewable energy and carbon neutral sources such as sunlight means that the future demand for silver will increase, as an increasing number of solar photovoltaics are used.

With more than $50 billion of green stimulus having been approved by governments up to 2020, and with Biden’s energy plan yet to come, silver will potentially surge further. In fact, the use of silver in photovoltaics grew by 7% in 2019 and is expected to grow even further as more governments commit to use renewable energy sources to generate electricity.

Demand for silver has also been on the rise since March due to the coronavirus pandemic, which turned investors towards precious metals to hedge against economic uncertainty. Concerns about tight supply and mine-production, combined with rising industrial demand are boosting silver even further.
According to various financial analysts and investors, the wider use of solar power as outlined in Biden’s plan might potentially double silver’s price. But this will come at a later stage, if Biden’s plan gets official approval.

Fundamentals also Boost Silver

Precious metals such as gold and silver are a hedge against inflation, so if the markets are expecting disappointing data to force the Fed to take necessary action to increase inflation, then this will offer support to precious metals. Therefore, precious metals were boosted by dovish Fed, low real yields, and rising inflation expectations.

For example, on 16th December, US 10-year TIPS yields fell to -1.03% following the FOMC and driven by a further increase in inflation expectations, which continue to rise as Congress moves closer to a coronavirus stimulus deal. When real yields fall, precious metals become more attractive, when compared to treasuries.

Precious metals are also used to hedge against inflation, something which in turn has contributed to the rising interest in silver. CIBC bank has forecast that silver prices will reach $32 per ounce in 2021, before sliding to $31 per ounce in 2022 and $30 per ounce in 2023.

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This information is not considered as investment advice or an investment recommendation, but is instead a marketing communication

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