WisdomTree ETF: Silver outlook to Q2 2022: Surfing on an industrial rebound
Nitesh Shah, Research, Europe, WisdomTree
“Gold looks severely under-priced and we expect the metal to catch up with the persistently high inflation that we have seen over recent months. With a strong correlation to gold, silver prices should gain as gold stages an upside correction. Moreover, a continued economic recovery should bode well for the metal given its high industrial usage.
“We believe that silver will outpace gold, to gain 37.5% over the coming year versus 6.5% for gold. By Q2 2022, we expect silver prices to trade at around US$35.81/oz. A rebound in industrial activity will bode well for the demand for the metal. Meanwhile, a contraction in mining capital expenditure and a reduction in silver inventory on exchange, point to tightening supply.
Industrial demand to continue to recover
“Manufacturing Purchasing Managers Indices (PMIs) have risen strongly in the past year and have been in the expansionary (post-50 region) for 13 consecutive months (Figure 2). Although the reading had peaked back in May 2021, the level still remains strong, and we expect purchasing managers indices to remain in expansionary mode for the full forecast horizon. Metals Focus expect industrial offtake to rise to a record high of 524 million ounces in 2021 as economies open and green initiatives provide a tailwind for demand.
Mining capital expenditure
“Capital expenditure in mining industry has been declining in the face of the pandemic. That should help tighten the supply of silver.
“In 2021 silver inventory held in on exchange has been declining since its 2020 peak. We expect this to continue and provide some support to silver prices.
Silver as a ‘green-metal’
“We expect demand for silver to continue to rise in the photovoltaics sector as demand for renewable energy and hence solar panels continue to grow. Indeed an electrification cars and our energy systems will add a tailwind to silver demand given the metal’s excellent conductivity.
“In addition to the upside correction that gold should receive this year, silver will be bolstered by a green economic recovery. A renewed focus on meeting climate goals will intensify an electrification of transport and increase demand for photovoltaics. Both of these trends will be positive for silver demand.”