The outlook for silver demand is exceptionally promising for 2022, with global silver demand forecast to rise to a record high of 1.112 billion ounces in 2022, according to the Silver Institute, a marketing body funded by the silver industry.

Physical silver investment demand (consisting of silver bar and bullion coin purchases) is projected to jump 13% in 2022, achieving a seven-year high.

Silver jewellery demand is forecast to strengthen by 11% this year. India remains the driving force, assisted by improving consumer sentiment, it noted. Even though the Omicron wave affected Indian demand in early 2022, an expected easing of Covid-19 restrictions and efforts by jewellery retailers to increasingly push silver to urban consumers will favour jewellery sales across India.

In the US, following a significant rebound in 2021, jewellery sales expansion is expected to continue, albeit at a slower pace. Silverware fabrication is forecast to expand by 21% this year; again, India will account for the bulk of the increase for silverware in line with jewellery.

Total global silver supply is projected to rise by 7% to 1.092 billion ounces in 2022. The main contributor is silver mine production, which is forecast to grow 7% to a six-year high this year. This will be driven by higher output from primary silver mines, particularly from several large existing operations and supported by large new projects coming online.

The increase in silver recycling should be more modest in 2022, with volumes likely to advance by 3%, with the rise entirely due to higher industrial recycling. All other areas are expected to record lower volumes, as reduced distress selling weighs on jewellery and silverware scrap.

After shifting to a market deficit (total supply less total demand) in 2021 for the first time in six years, the silver market is expected to record a supply shortfall of 20 million ounces this year. However, the projected deficit is relatively modest in absolute terms.

Silver physical investment should enjoy double-digit gains in 2022 to hit a seven-year high. 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. Physical silver investment in India is also expected to strengthen on the back of improving economic conditions and positive price expectations.

Silver exchange-traded products (ETPs) saw a 6% rise to 1.132 billion ounces last year. So far this year, silver ETP holdings are little changed on year-end 2021 and remain close to record highs, a position which should be maintained for much of this year.

Early 2022 has seen GDP growth downgraded for several major economies, along with rising financial market volatility. This points to an increasing risk that the speed of the US interest rate hiking cycle could turn out to be slower than current market expectations have allowed. As a result, silver prices should initially benefit from fresh investor interest in precious metals. Silver’s high beta should also see it outperform gold, with the gold:silver ratio projected to retreat below 70 by year’s end.

Overall, the 2022 annual average silver price (basis the LBMA silver price) is forecast to be $24.80, 1% lower than 2021’s average price of $25.14. Even so, it will still represent a historically high annual average.

Silver earrings courtesy Sangeeta X Santoshi for Sangeeta Boochra