I've been sitting on the sidelines over the past week or so, watching the flow of posts and wondering if I should stick my head above the parapet. Anyway, here goes...
The movement in the silver price over the past week has prompted discussion on the silver forums as to the cause of the dramatic rebound , and not least here. The problem is -and this is what prompted me to jump back in today- most of the explanations being mooted here are probably wrong.
The talk here over recent days about people rushing into silver because of rising interest rates, or because of the recent FTX collapse, or the political deadlock in the US, or a 'financial system reset' (as per the heading of this thread), are almost certainly not major factors behind the rising trend we are seeing in the silver price, though I agree with Tando that the fall in the US dollar is of significance.
Note that I wouldn't discount any of the above as having some influence, and any of them might prove to be significant drivers in the future. But these alone don't sufficiently explain the resilience we've seen in silver over recent months.
The predominant demand driver for silver at the moment is a solar story. I'll outline the argument as to why I say this below.
In my last post here back in October, I included a shot from Google Trends, which highlight the surge in searches for the topic 'photovoltaics' around the world, and particularly in Europe, since the eruption of the Ukraine war.
But there was something I noticed that day that I found much more intriguing than that particular chart.
Oddly, searches from China were showing up in the Google search data, ranked in tenth place. That was certainly unusual, because hardly anyone in China uses Google, there it is overwhelmingly Baidu. After noticing this, since then I have been keeping an eye on the Google Trends patterns from China on this topic.
Take a look at the chart below, showing the 'Photovoltaic' topic searchers from China on Google Trends over the past five years (Note that on Google Trends, 'topic' covers all searchers for a specific subject, including those in different languages). In the image below, notice the date for the peak in searches-
Now, here is the USD silver price chart over the last month. Again, note the date when silver price rebounded (4 November).
While it wouldn't be wise to jump to conclusions based on correlations between a couple of charts, there are other credible sources that back up the notion that demand from China's solar industry has been the major silver price driver lately.
Growth in solar production in China has been huge this year, which probably goes someway to explaining why there are searches from China spilling over into Google.
The extract below is taken from a report in an industry publication from last month:
...China's total annual solar cell and module production capacity may increase from 361 GW at the end of last year to up to 600 GW at the end of 2022, according to the Asia Europe Clean Energy (Solar) Advisory (AECEA)...
Assuming the above article is right, that represents a huge increase over a 12 month period, with producing capacity almost doubling this year.
The suggestions in the report above is backed up by another article published this week concerning China's JA Solar, the second largest solar module maker in the world:
...The maker of solar panels notched a 89% jump in sales for the first nine months of 2022 to 49.3 billion yuan ($6.8 billion) from a year earlier...
China is by far the biggest solar producer in the world, with around 80% of the world's solar panels being produced in the country. So China's solar industry, more or less, is a proxy for global solar production.
Photovoltaics consumed roughly a tenth of the world's silver supply just prior to the pandemic, according to the Silver Institute, and based on those reported production figures from China, demand from the solar industry are suggestive of an annual increase in demand for silver of at least 5%, and I am being conservative there.
I'm sure that level of growth in demand would easily overshadow any increase in physical demand for coins and bullion that might be raking place, not withstanding Robert Kiyosaki's recent conversion to the silver cause.
Given the current energy crisis, it isn't surprising that solar demand has gone through the roof.
Of the medley of technologies that clunkily get bundled into the 'renewable energy' pigeonhole, solar is the least controversial, by a long shot.
Hydropower kills fish, wind power kills birds, and many people don't want wind turbines them near their houses. But no-one complains about solar.
In other words, on the energy question, solar represents the path of least resistance.
Some may quibble that solar doesn't provide 'base-load power', and in many places this is true. But even so, I'd say that the writing is already on the wall: solar seems to be set to become the foundational energy source of the future. Other energy sources will certainly still be around, but just to make up for the shortfall.
Every so often, there is some hype around new types of next generation silver-free photovoltaics, and we are seeing some of that at the moment. But currently, silver is a critical element in the manufacture of solar panels, and it is invariable that any surge in demand for solar will flow on through on to silver demand.
Anyway, when all things are considedered, the evidence seems to point to solar as being the key factor behind the strength in the silver price that has been evident recently.
This might not accord with the views of some here, but at the end of the day, investors should be aiming, as much as possible, to ground their decisions on the available evidence, rather than on guesswork, hopes or strongly held convictions.
(20min delay)
