Silver prices have faced headwinds in 2022, but leading indicators suggest a breakout may be on the horizon in 2024. With global supply unable to keep pace with industrial demand, alongside rising inflation hedge appeal, the stage appears set for silver and silver mining stocks to shine.
Silver’s Downtrend
Silver started 2022 trading around $23 per ounce, but faced selling pressure as the year unfolded. By mid-May, prices had slumped below $21 as the US Dollar rallied and the stock market tumbled into a bear market. This downward trajectory accelerated over the summer as recession fears mounted.
According to Keith Weiner, the CEO of Monetary Metals, silver tends to trade in sympathy with gold, but with more exaggerated moves on a percentage basis. This played out in 2022’s decline phase, with silver underperforming the yellow metal significantly. By late September, silver had sunk to $18.15 – its lowest level since April 2020.
This rout continued into November, as silver posted its longest losing streak in over a year and a half. Both silver and gold came under pressure from declining investment demand amidst higher interest rates. Chris Mancini, a research analyst at Gabelli Funds, noted this dynamic blunting precious metals appeal for the first time in years.
The erosion of investor interest could be seen in bullion-backed ETF holdings as well. The iShares Silver Trust, which offers direct exposure to the silver spot price via its 441.47 million ounces of silver bullion, saw its year-to-date net asset value return slump to -0.3% by late October.
However, silver had become deeply oversold by this point from a technical perspective. And several leading indicators suggested the commodity was positioning for a trend change heading into 2023 and 2024.
Seeds of Reversal Planted
The tide started to turn for precious metals in early November, as the US Dollar’s rally finally stalled out and recession odds ebbed. This shifting landscape prompted traders to take a second look at gold and silver from an inflation-hedging perspective.
These tailwinds strengthened substantially in December when the Fed revised its forward guidance on interest rates. The indication of a moderation in tightening sent Treasury yields and the Greenback lower, providing room for precious metals to rebound.
With industrial activity concerns subsiding alongside the Fed’s policy shift, Peter Spina’s fears about crimped demand growth have also eased. And according to Weiner, at some point the Fed will need to actually reverse interest rates to spur the economy. This policy U-turn would act as rocket fuel for gold and silver prices.
Why Silver Looks Compelling for 2024
While financial conditions have improved markedly for precious metals, silver offers particular appeal heading into 2023 and 2024 due to its industrial utility. The Silver Institute’s 2023 interim silver market review reveals severely tight fundamentals that could drive outsized price spikes.
Structural Supply Deficits
For the third straight year, global silver supply is expected to fall short of total demand. After a 30 million ounce deficit in 2021, the roughly 194 million ounce shortfall for 2022 represented a nearly 4-fold increase – and a “multi-decade high”.
And while the projected 168 million ounce supply gap for 2023 marks a moderation, it still reflects an extremely bullish setup historically. Over the last 10 years, the average annual deficit has totaled just 36 million ounces. So the current structural shortfall remains multiples above the norm.
With available inventory stocks extremely limited after back-to-back years of drawdowns, any silver demand spike risks sparking substantial price shocks. And from an industrial perspective, demand continues to go vertical without any signs of ebbing.
Surging Industrial Utility
Silver’s widespread use across industrial and technological applications leaves it poised to capitalize on several booming secular growth trends. The Silver Institute forecasts global industrial demand will set a new record high in 2023, surging 8% to 632 million ounces.
The primary growth driver will be burgeoning photovoltaic investment, particularly in China as it rapid scales its solar capacity. But 5G rollout, expanding electric vehicle production, consumer electronics, and upgraded power infrastructure should all support robust silver consumption as well.
And even as industrial usage hits new highs, ongoing supply chain issues and mine production lags limit output growth. Total global silver supply for 2023 is estimated around 1 billion ounces, while total demand is expect to eclipse 1.14 billion ounces.
Without higher sustained prices to motivate selling by current silver holders, this crushing demand looks likely to persist. And the potential for an investor-driven spike could send prices vertical when the breakout finally materializes.
READ ALSO: Expert Silver Investment Tips for 2024
4 Silver Stocks to Watch Heading into 2024
With silver fundamentals growing increasingly bullish, quality mining stocks should see upside leverage if the spot price run materializes. Here are 4 silver stocks worth monitoring over the coming years:
Pan American Silver Corp (PAAS) – This larger producer operates 10 different mines spread across Mexico, Peru, Bolivia and Argentina. The mid-tier miner acquired Yamana Gold in early 2023 to further diversify holdings and boost growth potential. Integration efforts have progressed smoothly to date, with management confident on delivering planned $40-60 million in cost synergies over the next few years.
Hecla Mining Co (HL) – This Idaho-based silver heavyweight boasts an industry-leading position in terms of cost curve ranking and margins. Hecla accounted for over one-third of US silver production in 2022, while also pulling 45% of all US silver reserves with its asset base. The miner aims to breach the 20 million silver ounces production threshold in 2025, establishing itself as Canada’s largest silver producer as well by 2024.
First Majestic Silver (AG) – After acquiring Jerritt Canyon last year, this silver pure play operates a portfolio of 6 productive mines in Mexico. First Majestic also owns one of the world’s purest silver development assets in Ermitano, with phenomenal capacity potential long-term. While the company negotiates union disputes at San Dimas currently, management still believes all mines are set for higher throughput in 2023. A renewed share buyback program also reflects confidence.
Endeavour Silver Corp (EXK) – Of all major silver producers, this emerging mid-tier miner retains the greatest output growth visibility over the next 3 years based on its development pipeline. The company’s Parral project in Mexico could contribute up to 4 million silver ounces annually by 2025. While its smaller scale leaves Endeavour more exposed to inflationary pressures, its growth outlook makes it a top takeover target.
To Recap: Act Quickly to Capitalize on Silver’s Pending Breakout
Despite silver’s difficult 2022, mounting signs point to a trend reversal unfolding in 2023 that could ignite an explosive move into 2024. With physical supply unable to keep pace with unrelenting demand growth, silver prices may need to overshoot dramatically to meaningfully curb usage. And with most investors still disillusioned after last year’s slide, positioning remains highly skewed to the short side – risking an epic short-squeeze as well if a breakout materializes.
In short, from a risk-reward perspective, silver offers one of the most compelling asymmetric opportunities across all asset classes presently. The window to buy at discounted levels won’t stay open long if this advancing bullish thesis proves correct. So investors looking to generate potentially life-changing gains over the next 24 months must take decisive action quickly before the next bull run leaves station.
FAQs About Silver’s Breakout Potential in 2024
Has silver bottomed yet?
After sinking below $18 in late September 2022, silver bounced back above $21 in early October and has held that higher trading range since. This consolidation suggests a bottom has likely formed, with key resistance in the $23-$24 region. A sustained break above this zone would confirm the bull market resuming.
What analysts are bullish on silver?
Many analysts turned cautious on silver earlier in 2022 when inflation hedge demand initially weakened. But by late summer analysts like Peter Spina were noting extreme oversold conditions from a technical perspective. Heading into 2023, strategists like Weiner, Mancini and Spina have all voiced more optimism on a trend reversal unfolding.
How high can silver realistically run?
If gold can breach $2,000 and stage a run back toward its record highs above that threshold, silver could certainly make a run toward $50 in sympathy. And with an unprecedented supply deficit leading to physical shortages, a supply-driven price spike could send silver vertical. Technical analyst Spina believes $30 is feasible in coming weeks if gold sustains strength, with a run toward $50 conceivable in 2024.
Will silver keep falling if stocks enter a bear market?
During 2022’s fierce stock market drawdown, silver declined in tandem with equities showing its high beta. However, as recessionary signals mount – sending stocks lower but boosting precious metals safe haven appeal – this positive correlation has already started breaking down. Silver and gold should therefore provide resilience against any market turmoil over the next year.
How should I invest in a silver breakout?
The most direct route is via silver bullion, bars and coins. Next, ETFs like the iShares Silver Trust (SLV) offer efficient exposure by tracking silver’s spot price. Finally, silver mining equities can provide amplified upside, but also higher volatility. Focus on well-managed companies with higher production growth visibility and lower debt positions. Streaming companies like Wheaton Precious Metals Corp (WPM) also offer alternative exposure.
In another related article, Silver Investment Opportunities Coming in 2024
