There’s one big factor that continues to be ignored by investors when looking at silver prices: many technology products need silver. Silver is used in smartphones, tablets, laptops, and many other home and business electronics.
This may sound like a bold statement, but the technology sector could take silver prices to $50.00 an ounce.
In 2015, industrial demand for silver reached 588.7 million ounces. Of the 588.7 million, 246.7 million ounces of silver were used for electrical and electronics. (Source: “Supply & Demand,” The Silver Institute, last accessed August 18, 2016.) So we have about 42% of the silver created each year being taken up for tech products. That’s huge.
And going forward, with so many new technology products coming out, demand for silver will only rise.
According to Gartner, Inc., an information technology research and advisory firm, in the first quarter of 2016, 13.6 million more smartphones were sold globally; that’s 3.9% higher than the same period a year ago. (Source: “Gartner Says Worldwide Smartphone Sales Grew 3.9 Percent in First Quarter of 2016,” Gartner Inc., May 19, 2016.) All those cell phones need silver!
Assuming the smartphone sales level grows by just 3.9% in 2016, phone manufacturers will need more silver to meet demand. Now, I’ve only mentioned the rising world demand for smartphones. As I said earlier, there are many other electronics that use silver.
Looking at the other side of the equation, the supply of the silver market remains constrained. In fact, silver supply is in trouble and no one is really talking about it.
Take Mexico, the biggest silver-producing country, as an example. In the first five months of 2016, the country’s silver production declined 2.5% compared to the same period a year earlier. Silver production in Mexico amounted to 1.9 million kilograms in the first quarter, the lowest quarterly output for the country since 2012. (Source: Servicio Geológico Mexicano, last accessed August 18, 2016.)
In the U.S., the ninth biggest silver-producing country, silver production declined 0.4% between January and May. (Source: U.S. Geological Survey, last accessed August 18, 2016.)
And declining silver production isn’t just an issue in Mexico or the U.S. Other regions are reporting similar results.
Silver Prices Outlook for 2016 and Beyond
If you are trying to find where silver prices are headed next, you have to pay attention to “economics 101.” Demand for the precious metal is rising. But supply is constrained. Hence, the result is a 45% increase in silver prices year to date.
Going forward, I wouldn’t be surprised if silver production were to decline further. This is because, over the past few years, when silver prices were low, silver miners pulled back on their exploration and development projects, hence less new silver was taken out in the short term.
Based on increasing demand from the tech sector for silver, based on a contraction in the amount of new silver mined and no new big silver mines coming on line, you can see why I am so bullish on silver prices.