Silver Price Update: Q1 2024 in Review

While gold captured attention as it set price records in March and April, silver has produced better returns for investors. In an April 9 email to the Investing News Network (INN), Peter Krauth, editor of Silver Stock Investor and author of "The Great Silver Bull," commented on the white metal's performance during the quarter.

“Silver also typically lags gold, then catches up and surpasses it. We’re starting to see that happen in spades right now. Since the end of February, gold is up about 15 percent, while silver is up about 22 percent," he said.

Krauth emphasized, "Those are breathtaking gains in just a matter of weeks."

According to Krauth, this rise came alongside decreasing inventories at the COMEX, London Bullion Market Association and the Shanghai Gold Exchange, where stockpiles have dropped 40 percent over the past three years.

“The same has happened to silver exchange-traded funds (ETFs) globally. My view is that large silver consumers are buying long contracts and silver ETFs, then taking delivery," he noted.

"That helps explain why the silver price didn’t rise in the face of ongoing deficits. But these inventories are being drained, and I think there may be 12 to 24 months left before they run out."

Silver supply unable to keep up with demand

On the supply side, the Silver Institute is predicting a decline of 1 percent in 2024, with 1 billion ounces being made available. Recycled quantities of silver are expected to remain flat at 178.9 million ounces, while the biggest drop is seen coming from mine production, with an estimated total of 823.5 million ounces in 2024.

This differential suggests a widening deficit of 215.3 million ounces, a year-on-year increase of 17 percent.

Silver is primarily produced as a by-product of gold, lead, zinc and copper, with these mines accounting for 595.2 million ounces in 2023. Meanwhile, primary silver mines produced just 235.2 million ounces.

With a contraction in mine output forecast for 2024 and increasing industrial demand over the next several years, the Silver Institute is projecting more tightness over the next few years.

Krauth sees two standout projects set to add millions of ounces over the next year.

“There are two major primary silver projects that stand out. Endeavour Silver (TSX:EDR,NYSE:EXK) is building its Terronera project in Mexico, which will bring about 7 million silver equivalent ounces per year, starting at the end of this year. Then there’s Aya Gold & Silver (TSX:AYA,OTCQX:AYASF), whose Zgounder mine in Morocco is expanding production from about 1.9 million ounces of silver to 8 million ounces, starting with its commissioning in Q2 this year,” he said.

The Silver Institute also sees supply contributions coming from Newmont’s (TSX:NGT,NYSE:NEM) Penasquito mine, which will return to full production in 2024 following strike action in 2023. Meanwhile, Coeur Mining (NYSE:CDE) is expanding its Rochester mine, and Kinross Gold's (TSX:K,NYSE:KGC) Manh Choh project is coming online.

Even with these additions, the Silver Institute sees steep offsets in silver production, including the loss of 17.9 million ounces out of Peru as Hochschild Mining (LSE:HOC,OTCQX:HCHDF) has placed its Pallancata operation into care and maintenance as it waits for permits for its Royropata deposit.

Investor takeaway

Krauth sees strong upside in silver's industrial applications, although he believes many market participants still see it largely as a precious metal. However, attitudes may be starting to change.

This past January, silver producers penned an open letter to the Canadian government, urging it to include the metal on the country's list of critical minerals. While the government won't make a decision until May, silver companies could see new funding options open up if the metal is added, while permitting could be streamlined.

Krauth thinks such a move would boost silver’s status among investors, and is a point to watch in Q2.

“I, along with the entire sector, will be watching closely to see whether silver makes the list or not. If it does, I think that would be a shot in the arm for silver. The broader investment community would pay more attention to silver’s significant structural supply shortages,” he explained to INN.

Krauth wouldn't be surprised to see a pullback in silver this year, but thinks it is in a sustained bull market. He expects the price to continue to hold at US$28, and probably grow to US$30 in the second half of the year.

As silver sees upward momentum going into the next quarter, it may present opportunities for investors who want an alternative to gold, or are keen to take advantage of the white metal’s increasing role as an industrial metal.