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21.11.202313:32 Forex Analysis & Reviews: High demand supports precious metals prices

High industrial demand for silver worldwide and for gold ahead of the festival in India are supporting the price forecasts for precious metals this year.

According to preliminary data, imports in October increased by about 50% year-on-year, equivalent to approximately 115 tons.

The Hindu festivals of Dhanteras and Diwali, held earlier this month, typically stimulate gold purchases. Therefore, dealers procured it in October.

According to the World Gold Council, during the first three quarters of 2023, gold demand in India was 3% lower compared to the same period last year, totaling 481 tons.

Analysts suggest that for the fourth quarter of 2023 to match last year's gold consumption levels, it must become the strongest quarter in demand in the last two years.

Meanwhile, the yellow metal is steadily approaching the $2,000 per ounce mark.

The latest data from the Silver Institute shows that the forecast for industrial demand in 2023 has been revised upwards by 10% to 632 million ounces. This is primarily due to the faster-than-expected adoption of solar photovoltaic energy this year. Data from China National Energy Agency states that China added 129 GW of solar power this year, more than in any other year.

Silver is now trading not far from the $24 per ounce level. Demand for the precious metal is facing a reduction in supply from the mining sector. It is estimated to decline by 2% year-on-year, which initially was forecast to rise 2%. The reduction is explained by the temporary closure of Newmont's Penasquito mine in early 2023. According to estimates, this closure in 2023 will reduce the forecast for silver production by 16 million ounces.

Based on production forecasts, silver output at KGHM—the world's second-largest silver miner—is expected to drop by 2% annually to 41.8 million ounces. However, there is a possibility that this volume will be higher by the end of the year.

High smartphone sales also help boost silver demand. In the third quarter of 2023, global smartphone shipments fell only by 0.1% YoY, to 303 million units.

This year, sales of consumer electronics were relatively weak. Accordingly, the demand growth was also weak. However, higher smartphone sales are a sign that recovery may begin after a period of retailers reducing their inventory.

Also, 5G phones, which contain more silver than 4G phones, reached a 60% market share. Typically, the fourth quarter is the strongest for smartphone sales. Presumably, shipments will increase.

The risk is that, next year, an economic downturn may affect consumer spending, and sales may decline. If this is not offset by the growth in the market share of 5G, associated with this, the demand for silver may also decline.

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Irina Yanina,
Analytical expert of InstaSpot
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