Silver prices on a rocket: Will it touch Rs 1,25,000? Here is what a Motilal Oswal analysis has to say

The price of silver has surged recently, with some analysts predicting it could reach new heights. But will it climb to a staggering Rs 1,25,000? Understanding the factors influencing silver's value is crucial in making informed decisions. Let's take a closer look at these factors and see if this sky-high prediction holds weight.

According to Motilal Oswal Financial Services' Quarterly report on Silver, with over 30% gains in recent months, silver is likely to see some profit booking at certain intervals; however, any major dips could be used as buying opportunities. Important support is near Rs 86,000-86,500, while MOFSL revises targets higher from Rs 1,00,000 to ₹1,25,000 on the domestic front and $40 on Comex from a 12–15-month perspective. Buying on dips is recommended for silver.

Central Banks and Inflation

Central Banks (CBs) around the globe have been in the limelight for the past few years. Inflation has been under scrutiny ever since it spiked in 2021. Following QE in 2020, inflation in major economies reached near double digits. To calm these inflationary pressures, major CBs have raised interest rates by ~1600bps since 2022. The Fed announced QT measures to reduce its already bloated balance sheet. Amidst these measures, inflation pressures eased significantly. Even after a spike in rates, no major economic impact was seen on economies. Recent economic numbers have started to show signs of weakness. The ECB recently announced a hawkish cut of 25bps, and further updates will be important to watch. However, the IMF’s recent report showed a steady growth trajectory for 2024 and 2025. US GDP was recently reported at 1.4%. It will now be important for the Fed to strike a balance between inflation and growth, but the resilience of the global economy is a reassuring sign, according to the report.

China and Its Impact on Silver

China is one of the largest consumers and producers of industrial metals. Hence, any major move in industrial metals also triggers a move in silver. It was one of the only economies to have had a three-year lockdown during the pandemic. Amidst this extended shutdown, economic activities were reduced to a bare minimum. The property sector, which was already under distress, fell further. China’s property investments fell by ~10% in the first half of 2024, despite a drop in prices. Lack of FDI and slower growth increased pressure in other sectors as well. On the positive side, market participants are hopeful for a liquidity push by PBoC. Chinese inflation is near 0%, so the central bank has a lot of room to cut rates. The Chinese equity market has reversed significantly, and imports of crude, copper, and gold are quite high, giving some confidence in the freshly brewing China story, according to the MOFSL report.

Geopolitical Tension

Panic, distress, or black swan events are supportive for safe haven assets. Since 2022, when Russia invaded Ukraine, the risk premium in the market has been elevated. Be it trade tensions in 2019, Russia-Ukraine in 2022, or Israel-Hamas in 2023, all geopolitical tensions are still active and impacting markets from the sidelines. Being an election year in the US, economic uncertainty could also boost the safe-haven appeal for silver.

Silver Demand and Supply

According to the Silver Institute forecast report, total demand is expected to grow by ~2% from 2023 to 2024. Total demand in 2024 is expected to be ~1219 tonnes, while 2022 demand was ~1279 tonnes. Industrial demand is expected to be the highest at ~710.9 tonnes, growing by ~8.5% since 2023 and ~40% since the pandemic. Jewellery and silverware demand is expected to increase by ~4.5%. However, the demand for net physical silver and photography is expected to fall, according to the MOFSL report.

Manav Modi, Senior Analyst – Commodity Research at Motilal Oswal Financial Services Ltd, states, “Total supply is expected to fall by ~1% from 2023 to 2024, with the total supply in 2024 expected to be approximately 1004 tonnes, similar to the level observed in 2021. Mine production is expected to decrease by 1% from the previous year to 823.5 tonnes in 2024. This decrease is attributed to challenges in mining operations leading to increased supply constraints."

"Interestingly, lifetime high prices on the domestic front seem unfavorable for recycling, which indicates that the incentives for recycling are not strong enough to increase supply significantly. Demand for silver is projected to exceed supply for the fourth consecutive year in 2024. This suggests that the market balance for silver will remain in deficit, contributing to potentially higher prices as demand outpaces supply. Overall, these factors indicate a challenging supply situation for silver in 2024, with production constraints from mining and ongoing deficits in market balance driving the market dynamics,” he added.