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The Unlikely Driving Force Behind an Imminent Surge in Silver Prices

Back in April, I told you about the dual purpose of silver.

Like gold, it’s prevalent in jewelry. But unlike gold, its reach also stretches to many industrial applications.

In fact, 54% of the demand for silver came from industry in 2013 – a figure that’s set to rise to 57% this year, according to Thomson Reuters. That would represent a new all-time high for silver’s industrial usage.

Looking further ahead, precious metals consultancy firm, Metals Focus, says industrial demand for silver will grow by at least 5% annually through 2016. That’s higher than forecast global GDP growth during that period.

And silver usage cuts across a swath of industries – semiconductors, electronics, chemicals, and solar power.

Indeed, the latter is especially interesting at the moment…

The Silver/Solar Relationship

Silver is a key component in the manufacturing process for photovoltaic solar panels. Every solar panel contains about 20 grams of silver.

In China alone, the number of solar panels manufactured has doubled every year since 2003. And with no end in sight to this trend, it’s no wonder that Metals Focus says silver demand from photovoltaics will climb by 10% this year.

Overall, demand for silver from the solar power industry will continue to hit record highs in the years ahead, on the back of solar analysts, who say that global demand for solar power will double over the next five years.

Specifically, current estimates call for an additional 45 gigawatts (GW) of new solar power capacity this year – up 22% from 2013, and equivalent to the output of 10 nuclear reactors.

By 2018, solar capacity demand is expected to climb by 84 gigawatts.

To put that in perspective, one gigawatt of electricity can power between 750,000 and one million homes.

And Asia is leading the charge towards greater use of solar power.

Two Investments to Capitalize on a Silver Surge

China alone has 18 gigawatts of installed solar capacity, with plans to increase that to 30 gigawatts by 2015. And consider that about 80 tons of silver are needed to generate every gigawatt of electricity from solar panels.

The expected solar power growth rate in India is even more phenomenal. The current 2.2 megawatts of installed capacity is forecast to rocket to 20,000 megawatts by 2022.

Such growth – along with a positive future outlook for the solar industry – has ignited the silver market.

Indeed, the Guggenheim Solar ETF (TAN) is up 53% over the past year.

To demonstrate how important silver has become in the solar industry in a short time, a mere one million ounces of silver was used in photovoltaic fabrication at the turn of the century. But by 2015, the market for silver use in solar panel manufacturing is forecast to be 100 million ounces! That’s the equivalent of 10% of total silver demand.

Add that soaring demand to the fact that the silver market had a supply deficit of 113 million ounces last year, and you have the recipe for an upward move in silver prices.

Investors in physical silver through an ETF like the ETFS Physical Silver Shares (SIVR) should benefit. In addition, silver miners should capitalize, too – such as those in the Global X Silver Miners ETF (SIL).

And “the chase” continues,

Tim Maverick

Tim Maverick

, Senior Correspondent

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