Silvers Fundamentals Strong - As Electronics Sector Drives Industrial Demand

(November 6,2018 - Neils Christensen)

Although silver prices have significantly disappointing expectations this past year, one precious metals specialist said that growing industrial demand will continue to support the market and eventually attract investors.

David Holmes, senior vice president at Heraeus, said in a presentation at the London Bullion Market Association’s 2018 precious metals conference that the silver market is facing difficult headwinds in the near-term as the market has seen significant growth in above-ground stocks.

Holmes’ comments come as investor sentiment for physical bullion has disappointed market expectations.  The gold-silver ratio on Kitco.com remains at its lowest point in more than 2 decades, last trading at 84.51 points. December silver futures last at 14.55 an ounce, down 0.66% on the day.

However, he added that he is optimistic about the metal’s long-term fundamentals as industrial demand with the electronics’ sector is expected to double over the next 15 years.

One potential sector that could see explosive growth for silver is the auto market. Holmes noted that currently there is about half an ounce of silver used in vehicles, but he sees that demand growing to one ounce as the electrification of the industry continues to evolve. He explained that sensors on cars for autonomous driving and electric drivetrains all require silver components.

Another area of significant demand will continue to be the solar industry. Although the sector has seen some thrifting of metals used in solar panels, the sheer growth of the industry will drive silver demand, he said.

In his presentation, he noted that solar currently accounts for 2% of the world’s generated power that is expected to grow to 7% by 2030.

While there are risks to the sector from tariffs and shifts in environmental policies, Holmes said that he sees these factors as only minor hurdles.

“Tariffs and sanctions will slow green energy growth a little, but there is too much momentum to stall the industry completely,” he said. “Consumers are demanding more clean energy and that isn’t going to change anytime soon.”

The third pillar of demand from electronics is from the smartphone sector, said Holmes. While the developed world is reaching a saturation point for smartphones, emerging markets remains a reliable source of demand.

“India is now the second largest smartphone market in the world and is expected to grow by 15.6% in 2018,” he said in his presentation.

While industrial demand looks solid, the primary driver for silver prices remains the investment sector. Holmes said that while silver prices could continue to fall in the near-term, the market is looking a bit stretched as speculative bearish bets remain near historic levels.

“It’s not a revolution, but it is an evolution …. We can look forward to robust physical demand with strong growth in electronic applications leading to a positive price bias,” he said.