According to market data, with the spot silver price hitting a near 12-year high this week, the cumulative price increase of this precious metal has reached around 34% year to date, even overshadowing gold.

Financial Association News on September 29th (Editor Xiaoxiang): This year in the precious metals market, it seems that it's not just gold shining brightly - silver seems to be outshining even more!

According to FactSet data, approximately $0.856 billion has flowed into the world's largest silver ETF - iShares Silver Trust (SLV) so far this year. Many silver mining stocks have also risen, with Wheaton Precious Metals, a precious metals mining company, rising by about 30% year to date.

Multiple signs show that whether as a store of value or an industrial commodity, the demand for silver has been strong recently.

According to the Silver Institute, over the past three years, silver demand has consistently exceeded supply. The association predicts that there will be a supply shortage again this year. Citigroup research has also reached a similar conclusion, assuming even higher demand in the photovoltaic industry, with the silver market being in short supply for the past five years.

This is actually not difficult to find clues from both the supply and demand sides.

Firstly, mining output is weak. Over 70% of the silver mined globally is a by-product of other metals such as lead, zinc, copper, and gold. In recent years, zinc prices have been relatively weak, leading to a large number of mine closures. Last year, a major zinc mine in Mexico, the world's largest zinc producer, was shut down for four months due to a strike. Although silver recycling can also help offset some of the shortfall, it usually accounts for less than 20% of total supply.

At the same time, the demand for industrial use of silver is constantly increasing, largely thanks to the continuous expansion of production capacity of solar energy panels, with silver being indispensable in the production of solar energy panels.

Unlike gold, a significant portion of silver supply is used for industrial purposes. According to data from the Silver Institute, from 2019 to 2023, the demand for silver in the photovoltaic industry surged by 158%. The organization forecasts another 20% growth in demand this year.

Silver Institute CEO Michael DiRienzo stated that the global electrification revolution has indeed brought good news to silver. He added that most industrial uses of silver have no viable substitutes.

Max Layton, Director of Commodity Research at Citigroup, pointed out that part of the reason for the rise in silver this year is the signs of weakness in the US economy. Investors are looking to precious metals as a store of value. Expectations of interest rate cuts by central banks are another driving factor: demand for interest-free assets like gold and silver often rises as interest rates fall. Gold prices have risen based on this, and historically, silver prices have been closely linked to gold.

What's next for silver prices? Chinese demand is worth noting.

Currently, there are still a large amount of silver inventories to alleviate supply shortages in the market. According to a report from the Silver Institute, as of the end of 2023, the silver inventory in London and exchange registered warehouses is roughly equivalent to 15 months of global total supply.

However, over the past two years, these inventories have actually decreased by about 26%. Both the Silver Institute and Citigroup Research Department forecast that given the expected shortage in the market in 2024, this means that silver inventory levels may further decline.

So, what other factors could potentially drive silver prices further up? Some industry insiders are now turning their attention to China.

Layton stated that China's demand for silver as a store of value is strong, and at the same time, China's vigorous development of solar energy and electric vehicles has also stimulated the demand for silver as an industrial commodity, which is different from other major commodities such as oil. Citibank pointed out that earlier this year, the imported value of silver bars used to measure retail demand in China increased from almost zero to over 0.1 billion US dollars. Even if China's silver purchase volume is only 10% of the gold purchase volume, the resulting demand could be equivalent to about 20% of the silver mining supply.

Another catalyst worth noting is still the Federal Reserve's interest rate policy. If the Federal Reserve continues to cut interest rates, it may stimulate demand for gold and silver. In addition, if lower interest rates encourage more industrial activity in the United States, especially debt-dependent solar energy projects, this may further boost silver demand.

It is worth mentioning that in terms of the gold/silver ratio, silver is still relatively cheap compared to gold.

Currently, the price of 1 ounce of gold can buy approximately 83 ounces of silver. Compared to the average ratio of 67 over the past 20 years, silver is still relatively inexpensive. This can also be seen from historical comparisons of the silver price: although silver has risen this year, its price is still far below the highs reached in 1980 and 2011.