Silver supply and demand trends in 2017 and moving into 2018 are set to make silver one of the hottest investments of the year. The overall reduction in silver mining in concert with increased demand is set to cause a longer-term shortfall of this precious metal, which should push silver prices skyward.

Reduced Silver Supply

The majority of the world’s silver supply is mined in the Americas, with the countries of Peru and Mexico being the top producers. Significant disruptions in the South American mines caused nearly a 1 percent reduction in the amount of silver available in 2016, with a 2 percent fall in 2017. Silver is extracted from other base metals such as copper, lead, and zinc, and there is uncertainty whether or not extraction techniques and volume will be able to offset these mining losses.

Silver also enters the global market from melted scraps. Scrap silver has been dwindling since 2011 and isn’t expected to make up a significant portion of the global exchange in 2018.

If these silver supply trends continue, 2018 could be a year of shortage, which is likely to drive prices higher. Some analysts have already begun asking, “When will silver peak?

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Increased Demand for Silver

One trend that’s expected to contribute to silver’s strong showing in 2018 is the increased demand from a variety of different directions.

Silver is utilized in solar panels, and as they increase on a global scale the demand for silver is expected to follow. In fact, solar photovoltaics accounted for 19 percent of silver demand in 2017. Environmental concerns in China have been driving widespread adoption of this renewable energy in recent years.

Silver is unrivaled as a conductor of electricity, and the focus on the automotive sector has been towards expanding electrification of vehicles in the form of larger and more efficient batteries. Strong demand for silver is reportedly coming from this sector.

Other demand drivers were jewelry (2 percent); silverware (12 percent); and industrial fabrication (4 percent).[1]

Economic Factors

One of the economic factors that is expected to affect the price of silver in 2018 is rising inflation in the U.S. and around the world. Gold and silver are often considered a hedge against inflation because inflation can erode the value of fixed earned assets. As inflation climbs higher, precious metals, such as silver, serve as a store of wealth.[2]

Political Factors

Tensions within the federal government and internationally are driving investors to the safety of silver. Among the most notable are unrest in the Middle East and strained relations between the U.S. and China, Russia, and North Korea.[3]

Silver Market Balance

The silver market balance is determined by subtracting the total demand for silver from the total supply. Experts are projecting that the silver market is likely to reach above 1 billion ounces on both the supply and the demand side and that there will be a slight deficit in the market for silver in 2018. Above ground stocks of silver will have to be used to make up for the shortfall.[4]

Silver Prices on the Upswing

Upon examining the factors driving silver supply and demand, it’s clear that silver prices should be trending upward this year. Indeed, the silver price forecast for 2018 from many experts is positive on this precious metal. The key for savvy investors is to buy now while they can still find bargains.