According to data from the United States Geological Survey, Poland has become a leader in terms of silver deposits, which are estimated to be 170 thousand tons. Given current prices, the value of our silver ore deposits is around USD 127 billion.
The question arises whether the valuation of silver can follow the same trend as gold and reach historical heights? Can the value of our deposits still increase? What are the prospects?
In recent years, we have witnessed several transitory trends related to metals. However, these did not prove to be sustained. An example is palladium, whose euphoria is long behind us.
The same happened with platinum, currently valued clearly below 1000 USD per ounce. The case is different, however, with two classic precious metals – gold and silver. These two commodities are often compared together.
“The price of silver has been in wide consolidation in recent years, moving from 20 to 27 USD per ounce,” says Michał Stajniak, XTB expert, in an interview with MarketNews24. “Given the historical relations between gold and silver, at the current price of gold around 2000 USD, silver should be quoted at least 25-26 USD.”
Currently, we have to pay about 90 ounces of silver for an ounce of gold. Historically, the ratio of the price of silver to gold is slightly over 50, and in the last 10 years it is an 80:1 proportion. This means if the proportion from the average of the last 10 years is maintained, and with the price of gold at 2000 USD, silver should cost exactly 25 USD, which is slightly more than it costs now.
If the historical price ratio were to be maintained, silver should cost about 37 USD. This is still less than the historical silver records around 50 USD per ounce, but about 60% more than the current price.
For 10 years, until 2020, we observed a large oversupply on the silver market. Hence, the price of silver then averaged closer to the level of 15-17 USD per ounce. However, since 2021, the silver market has entered a significant deficit.
“This is not just the effect of higher investment demand for physical silver, but primarily the increase in industrial demand,” explains the XTB expert. “The development of photovoltaics can particularly foster the demand for silver.”
Approximately 50% of the total global demand for silver comes from the industry (for 2023, the demand for silver is about 35 thousand tons or about 1.1 million ounces), and the fastest growing category is photovoltaics. Considering the current energy transformation, we can expect further dynamic growth in this category. Investment and jewelry demand also play significant role, but in the second case different growth perspectives are not visible.
What’s more, the supply in the silver market is more or less stable, in recent years slightly above 1 million ounces (which is made up of mining and recovery from so-called scrap). The majority of silver mining is associated with the extraction of other industrial metals such as copper, zinc, nickel and gold. Therefore, supply prospects are also linked to the extraction of other metals.
Looking at the balance of demand and supply, since 2021 we have observed a growing deficit and this year is also expected to continue the dominance of demand over supply. Despite this, the price of silver has been static for over 3 years. Why is this the case?
The latest report from the USGS (United States Geological Survey) indicates a significant increase in discovered silver reserves in the earth. For 2023, reserves were expected to increase from 550 thousand tons to 720 thousand tons! At the current level of silver production, reserves will last about 27 years. Russia and Poland are mainly responsible for increasing these reserves: Russia’s reserves nearly doubled to 92 thousand tons and Poland’s reserves increased to 170 thousand tons!
Poland has thus become the leader in terms of having the largest amount of silver in the world, surpassing Peru. However, Poland is far behind in terms of silver production, extracting about 1300 tons annually. With current reserve estimates, silver could be mined for another 130 years! There is still plenty of room to increase silver production worldwide.
In the context of Poland, it is worth mentioning that one of the leaders of global silver production is KGHM. Although Poland produces less silver than Chile, Peru, China or Mexico, as a company, KGHM is second only to the Mexican company, Freniscillo PLC.
The price of silver remains above key support around 22 USD per ounce, which is above both the 50 and 200 week moving average. Furthermore, the price of gold is above 2000 dollars, indicating that silver should be at least around 25 dollars, maintaining the average price ratio of the last 10 years.
Lower interest rates will reduce the attractiveness of bonds and increase growth prospects for precious metals. Considering the still relatively low prices of silver to gold and the distant departure from historical peaks, silver still appears to be an attractive long-term investment. There are many possibilities for investing in silver, from physical coins and bars to futures contracts and ETF funds.
