Silver has both industrial and investment applications, meaning that silver demand comes from a variety of different places.
Known as the world’s most versatile metal for its unique properties, silver is used in many applications, from everyday silverware to medicine.
Industrial and technological uses for silver account for well over half of annual demand, spurred by the metal’s strength, malleability and ductility.
In 2017, global demand for physical silver was projected to decrease by 5 percent, in part due to a large decrease in the consumption of bars and coins. That was offset by greater consumption from the silverware, jewelry and industrial sectors, says the US Geological Survey.
Moving forward, increased silver demand is expected to come from the solar industry, since the precious metal is a great conductor of both heat and electricity, making it perfect for use in solar panels.
Here’s a look at four factors driving silver demand that investors should keep an eye on, according to the most recent data from the Silver Institute.
1. Industrial applications
Demand in 2016: 561.9 million ounces
Silver is the best electrical and thermal conductor of all the metals, and so it is used in many electrical applications, particularly in conductors, switches, contacts and fuses.
In electronics, silver is used primarily in the preparation of thick-film pastes, in multi-layer ceramic capacitors, in the manufacturing of membrane switches, in silvered film in electrically heated automobile windshields and in conductive adhesives. In 2016, demand from industrial applications saw a small decline from the previous year, reaching 561.9 million ounces, its lowest level since 2009.
Aside from electronics, silver has many other industrial applications. Photovoltaics, or solar panels, the automotive industry and brazing and soldering are the main industries where demand for silver is currently increasing. Here’s a brief rundown of those three categories:
Solar panels — The use of silver in the fabrication of photovoltaic cells, more commonly known as solar panels, is seen as an area of rapid growth in the short to medium term. The Solar Energy Industries Association expects that there will be “over 100 GW of solar installed in the US” by 2021.
Using silver as conductive ink, photovoltaic cells transform sunlight into electricity. In 2016, photovoltaic demand for silver was up by 34 percent compared to the previous year. Silver demand reached 76.6 million ounces in that year, up from 57.2 million ounces in 2015. According to the Silver Institute, the growth was “driven by a 49% increase in global solar panel installations, fuelled largely by a doubling of annual solar panel installations in China and the United States.”
Automotive industry — Over 36 million ounces of silver are used annually in automobiles, as every electrical action in a modern car is activated with silver-coated contacts. Basic functions such as starting the engine, opening power windows, adjusting power seats and closing a power trunk are all activated using a silver membrane switch.
Brazing and soldering — Adding silver to the process of soldering or brazing helps produce smooth, leak-tight and corrosion-resistant joints when combining metal parts. In addition, silver-brazing alloys are used widely in everything from air conditioning and refrigeration to electric power distribution.
Demand in 2016: 207 million ounces
Jewelry is often what most people think about when they consider silver demand. And for good reason — when it comes to jewelry, few materials are better suited for it than silver. Lustrous but resilient, the metal responds well to sculpting, requires minimal care and lasts for a lifetime.
Silver possesses working qualities similar to gold, enjoys greater reflectivity and can achieve the most brilliant polish of any metal. In 2016, silver jewelry fabrication declined 9 percent from the previous year, sinking to 207 million ounces.
3. Coins and bars
Demand in 2016: 206.8 million ounces
Minted silver coins were first used in the eastern Mediterranean region in 550 BC, and by 269 BC the Roman Empire had adopted silver as part of its standard coinage. Silver was the main circulating currency until the 19th century, when it was gradually phased out of regular coinage after the gold rushes.
Even so, silver is still used in some circulating coins, especially in American, Australian, Canadian, Mexican and Austrian bullion coins for investors. Silver demand in terms of coin fabrication took a dive in 2016, dropping nearly 30 percent. It sank to the lowest level since 2010, according to the Silver Institute, coming in at 206.8 million ounces.
Demand in 2016: 52.1 million ounces
Sterling silver has been the standard for silver hollowware and silver flatware since the 14th century. Silver cutlery and other decor lasts for generations as it resists tarnish, and is a traditional decoration in homes around the world. Copper is mixed with silver to strengthen it for use as cutlery, bowls and decorative items. In 2016, demand from silverware dropped from 62.9 to 52.1 million ounces.
Where do you think silver demand is going in the future?
This is an updated version of an article first published by the Investing News Network in 2017.
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Securities Disclosure: I, Amanda Kay, hold no direct investment interest in any company mentioned in this article.