Silver Price Forecast: Top Trends That Will Affect Silver in 2023

Silver deficit to persist in 2023 as supply faces pressure

Global silver output is projected to increase by only 1 percent in 2022, meaning any fresh supply will quickly be absorbed.

Looking forward to supply in 2023, Adam Webb, director of mine supply at Metals Focus, told the Investing News Network (INN) that he expects to see some growth in production out of South America and Mexico.

“We are expecting strong growth in global mined silver production next year, largely driven by the continued rise in Mexican output as projects such as Juanicipio and Las Chispas ramp up,” he said. “However, demand is expected to continue to outpace supply, and therefore the market will remain in deficit.”

Although silver production out of Chile grew by 25 percent in 2022, silver ore grades have declined globally by 55 percent since 2005, according to Maria Smirnova, managing director at Sprott.

“Ore grades depend on several things, including rising silver prices (which make it profitable to accept lower grades) and how the silver is mined,” she wrote in a note on silver supply and demand. “Going forward, mining companies will likely have to invest more in exploration and development in order to increase or even maintain supply.”

This could be challenging for miners as prices for energy, supplies and transport have skyrocketed in the last 12 months.

The first half of 2022 saw all-in-sustaining costs (AISC) fall to US$9.72 an ounce, a 10 percent year-on-year reduction. The savings were courtesy of the by-product relationship silver has with lead, zinc, copper and gold, all of which saw price growth in H1.

“The rise in by-product revenues surpassed the rise in costs in the first half of the year, leading to a lower AISC,” Webb said. With prices for these metals down in H2, he expects silver miners' by-product revenues to fall as AISC rises.

Due to this price and cost pressure, Webb will be watching several factors in 2023.

“Growth in Mexican output will be the main production trend in 2023," he said. "Meanwhile, rising costs and lower metal prices will put some higher-cost operations under pressure.”

Strong silver demand to continue, industrial uses key

Silver is known for its price volatility, but while lower levels may eat away at miners' margins, the versatile metal's price fluctuations aren't likely to significantly affect supply and demand trends.

Philip Newman, director at Metals Focus, pointed out that about two-thirds of silver is mined as a by-product by companies focused on other metals. “If the price was to weaken, you're not going to get that response from a large portion of mine production that you would have at a gold site, or say the (platinum-group metals)," he explained.

While a situation where the silver price is falling and supply isn't being cut "would be a downside," Newman pointed out that silver demand is also less reliant on price.

The Indian jewelry and silverware segments may be price sensitive, but demand out of other regions is steadfast. “The US market, which is not a big manufacturer, but is a massive consumer of silver jewelry, is largely price inelastic,” he said. “The margins on the product are so high, it doesn't really matter … in a rising market where the price is picking up, that demand doesn't go away.”

Industrial demand comprises roughly half of total silver consumption and is also largely price agnostic. The segment, which includes photovoltaics and light-duty vehicles, is expected to continue its upward trajectory after reaching a peak in 2022.

“We're quite bullish for industrial demand,” said Newman, pointing to the role photovoltaics play in energy security. “That's really quite positive for silver. So I think in the long term — we think that silver will outperform gold.”

Will silver outperform gold in 2023?

Silver is often referred to as a high-beta version of gold, and is used by investors to hedge against inflation and risk. Although silver is more susceptible to price volatility, it often responds to the same market conditions as gold.

“We, silver enthusiasts, have always said silver lags gold and then it more than catches up with gold at the end of the bull market. And since 1971, that has been true every single time, except for 2020,” Lobo Tiggre of IndependentSpeculator.com said.

By December 9, the gold/silver ratio had fallen to its lowest point since January after spiking to a two year high of 96.34 on September 1. Now sitting in the 76 range, the ratio, which signifies how many ounces of silver are needed to purchase an ounce of gold, has been trending lower since mid-October and could fall farther.

“I think the long-term average is somewhere in the high 60s … so you can see, eventually, that ratio is starting to come down to those levels, which then suggests that when that happens, that's a period when silver is outperforming gold,” Newman said.

Undervalued silver offers an investment opportunity

Despite silver’s positive supply/demand fundamentals, prices are projected to remain relatively flat in 2023 and 2024.

In 2022, the white metal is on track to average US$21, a 16 percent year-over-year decline. Next year, CPM Group’s Jeffrey Christian is forecasting a median silver price of US$20.90 with a potential high of US$23.50 and a low of US$17.50.

However, the data he has collected indicates that silver is likely to outperform gold in 2025 and 2026.

“Mainstream analysts are not necessarily thinking that the price of silver is going to hit US$750 anytime soon — or even US$50,” he told investors during a silver market update. “On the low end, pretty much the same — some weakness in 2023, but then again strengthening over the next three years.”

In the face of the future supply constraints, both Metals Focus and Sprott remain bullish on the precious metal.

“From a pricing standpoint, silver is historically undervalued relative to gold right now, and offers an attractive investment opportunity. We see a picture of silver fundamentals where supply trends cannot keep up with longer-term demand,” Smirnova wrote, citing declining mine supply and rebounding demand in all segments.

“We expect green technology and de-carbonization trends to continue and increase, even if economic growth slows globally.”