Silver is experiencing a rather complicated first half of 2020. It is a precious metal, functioning as a haven. However, its status as an industrial raw material has caused its price to suffer due to the coronavirus slowdowns. Still, the economic recovery will positively impact its price from next year onward.
According to a Bank of America report, the future of silver looks bright. A rapid recovery in the industrial sector is likely after the closure resulting from Covid-19.
The bank has revised its forecasts upward for the price of silver for this year. It rose from an average of 16.60 to $16.87 an ounce. By 2021, Bank of America estimates that silver will average $23 an ounce. This is up from the $22.50 it forecast a few months ago.
Silver closed the June 16 session at the London Bullion Market Association (LBMA) at $17.41 an ounce, while in the early hours of June 17, the spot price was around $17.50.
In their report, analysts at the US bank considered that the main factor influencing the evolution of the silver price is industrial demand. According to the report, the shutdown caused by measures to contain the Covid-19 pandemic could reduce industrial demand to its lowest levels since 2004.
However, there are reasons for optimism, since this drop in demand would be short. Although the health emergency caused by Covid-19 has had a significant impact on the global economy, the take-off of the industry will be faster than that of some other sectors.
Demand for silver in the energy sector is increasing
One of the industries that will take a vital part in this recovery will be renewable energy. According to Bank of America analysts, the growing importance of silver use by the alternative energy sector is highly relevant. The current health crisis has increased concern about measures to combat climate change. Some argue that governments are going to focus on the recovery of domestic economies. But a recent experience with Covid-19 and its cost suggest that many governments will be willing to collaborate on environmental protection.
Another factor for the increase in the demand for silver by the industrial sector will be 5G technology. It is estimated that silver in the electronic applications used in 5G will increase significantly, reaching 500 tons by 2025 and 715 tons by 2030. The amount is still small, but not insignificant.
On the other hand, investment demand has remained at high levels. However, it has not been able to compensate for the weakness of the industrial market. This growth has been caused by the same concern that has attracted investors towards gold – the size of fiscal deficits. This monetization of debt by central banks, including the potential implications for inflation, makes physical assets like silver less attractive.
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