(Kitco News) – Record physical demand for silver in 2022 might not be enough to drive prices materially higher this year as the precious metal sector continues to suffer from rising expectations that central banks will aggressively tighten their monetary policies to fight the rising inflation threat.
Wednesday, the Silver Institute published a report saying that it expects physical silver demand to reach a record high of 1.112 billion ounces this year, an increase of 8% from solid 2021 levels.
The report said that silver demand is expected to be broad-based. However, many analysts continue to watch silver‘s industrial component as the world develops green energy.
“Ongoing improvements in the global economy will give silver industrial applications an additional boost, mitigating near-term headwinds from supply chain bottlenecks and the challenges in certain regions from the ongoing COVID pandemic,” the silver institute said. “The outlook for silver‘s use in the photovoltaic (PV) industry remains bright. Government commitments to carbon neutrality have resulted in a rapid expansion of green energy projects. As a result, even with ongoing efforts to reduce silver loadings, record PV installations are expected to lift silver demand in this segment to an all-time high in 2022.”
Investment interest in silver is also expected to be robust this year. The Silver Institute said that it projects demand for silver bars and coins to jump 13% in 2022, representing a seven-year high.
Meanwhile, Wednesday, the Perth Mint said it sold more than 2.3 million ounces of silver in January, a record.
“As the year advances, ongoing macroeconomic uncertainties, and elevated inflationary pressure, should encourage retail investors to seek physical silver for wealth preservation. Accordingly, profit-taking is likely to remain muted,” the analysts said.
Demand for silver coins is already off to a solid start after the U.S. Mint said that it sold 5 million ounces of the precious metal in January, its best start to the year since 2017.
Although the market is expected to see robust demand, the price outlook remains muted as the precious metal faces monetary policy headwinds.
“Macroeconomic and geopolitical conditions will generally support precious metals prices in the first half of this year. However, once the pace of U.S. policy rate hikes becomes more evident, the price outlook becomes more challenging,” the Silver Institute said.
The Silver Institute said that it expects silver prices to average the year around $24.80 an ounce, down 1%, compared to 2021’s average price of $25.14 an ounce.
Commerzbank said that while the latest report from the Silver Institute gives silver investors some good news, it won’t be enough to support silver prices. The German bank said that silver prices should be dragged lower by gold as the Federal Reserve looks to aggressively raise interest rates, starting next month.
“We expect the price to total $24 per troy ounce by year’s end (previous forecast: $26). We have likewise revised our forecast for 2023 down somewhat to $27,” said Daniel Briesemann, precious metals analyst at Commerzbank, in a note published Thursday.
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