Like gold, silver prices are affected by many of the same factors that affect gold, including the global economy, the strength/weakness of the U.S. Dollar, and supply and demand. But the price is more volatile than the gold price and, compared to gold, is more affected by industrial needs and by jewelry demand.
The following is a brief list of industries that require silver for production; automobiles, photovoltaics, photography, televisions, computers, electronics, superconductivity, water purification, solar, medical use, silverware manufacturing, coins and medals and of course, jewelry. Silver has extensive industrial uses, whereas gold does not.
In late 2012, The Silver Institute issued a report that estimates future industrial demand. Currently, with the continuing sluggish global economy, a downturn in industrial demand is forecast for 2012. However, a forecast recovery in 2013 will see these losses entirely recouped. Industrial demand is particularly strong for automobiles, photovoltaics, televisions, and personal computers.
ESTIMATED FUTURE DEMAND
The report predicts that during 2012-14, some silver industrial market segments will outperform, including the use of silver in ethylene oxide (EO) plants, which already experienced strong demand in 2012. Silver oxide is used as a catalyst to produce EO, which is then used as a key ingredient in a range of products such as polyester. It is projected that photovoltaic off-take to broadly stabilize in 2013 and robust demand in the use of silver in photovoltaics is anticipate in 2014.
Looking ahead, the report projects an estimated 6% rise in silver industrial demand, creating a new record high in 2014, which will account for an estimated 57% of total silver fabrication that year. A steadily improving economic outlook, strong growth in the automobile sector, and a recovery in the housing and construction industry are primary reasons for the forecasted uptick in demand, according to Thomson Reuters GFMS, which produced the report for the Silver Institute.
CHINA AND SILVER
Regionally, over the past 10 years, the most notable change has occurred in demand from emerging markets, mainly China. China accounted for just 8% of global industrial demand in 2000, compared to a strong 18% contribution in 2012, and is expected to grow further. The report notes that U.S. industrial demand will remain particularly elevated, enhancing its position as a leading manufacturer of high-end silver materials.
SILVER MINING COSTS
Finally, one strong factor affecting the silver price is the mining cost of getting it out of the ground, which has been estimated at being in a range from $22 per ounce to $30 per pounce. Yields are falling, year by year, which puts upward pressure on mining costs; the average silver yield of the top six silver mines has declined 38% since 2005.
(Source: The Silver Institute)