After a difficult May and June, silver has enjoyed strong gains in July on the back of a weakening dollar and higher demand expectations. The alternative precious metal is currently bumping up against resistance at $25 per ounce but could be poised to make further gains in the months ahead.

Having fallen as low as $22.13 on June 23rd, silver has bounced back to hit a peak of $25.07 early this morning, a more than 13% gain in just under four weeks. The price rise almost wipes out all of silver’s losses since May and leaves the metal back in positive territory for the year-to-date.

180723 Silver Chart

USD has weakened in the past few weeks as low inflation figures suggest the Federal Reserve may be able to hold off from further interest hikes at their next committee meeting to be held next week. If the Fed do hike again the dollar could strengthen slightly, but market expectations would suggest one more hike at most and the peak finally upon us. The current weakness of the dollar however has been to silver’s benefit, spurring the recent rally. Can silver maintain this momentum, and what are the key drivers to look for in silver for 2023 and beyond?

Like the gold price, the US dollar will be a key driver for silver, and as discussed above the strength of the dollar will be determined by the direction of the Fed on interest rates. If inflation proves stickier than expected the Fed could still hike rates further, and this would push the dollar higher, and silver lower. If current expectations prove true however then the peak could already be in, or very close. A long period of holding at high rates would likely keep silver where it is, but a pivot to rate cuts in 2024 could easily devalue the dollar and help silver shoot higher.

Silver’s high industrial use means it could face headwinds from any potential recession in 2024. The long period of high interest rates is currently expected to cause a mild recession in both the UK and US, with some EU countries like Germany already in recession. China’s economic growth has also been slowing in recent months and could be an early indication of a struggling global economy to come. If so, the lower industrial demand could see silver under pressure, even while demand from investors rises.

Silver’s use in greener energy production, solar in particular, remains a key avenue of demand growth however that could offset any potential recession. China has seen significant solar growth in recent years, with Q1 2023 seeing more solar production than the rest of the world combined. China’s solar output is expected to grow significantly as it marches towards a goal of being carbon neutral by 2060.

Based on figures from the Silver Institute, silver saw record demand in 2022 of 1.242 billion ounces. Supply failed to match this demand, resulting in a deficit of 237.7 million ounces. The Institute forecasts another supply deficit this year as well, with further strong demand from solar panels and electric vehicles in particular. If demand does continue to outpace supply, then this should provide some further support to the silver price in 2023 and 2024.

In the short-term then silver has passed resistance at $25 per ounce. A significant breakout past this level should provide the momentum for bulls to push the rally further and get silver back towards the $26 level seen in May, and next week's US rate decision should result in some further price volatility up or down.

Longer-term, analysts see $30 per ounce as a key level, not seen in silver since 2013 when the metal was coming down from it’s all-time high during the financial crisis. Given the speed silver moves at when prices do start to rise it’s certainly conceivable for rate cuts, a supply deficit, and investment demand quickly pushing silver towards these levels in 2024 if circumstances do move in silver’s favour.