Q1 2024 reports clouded by inflation and war risks

The latest US Non-Farm Payrolls report showed that 303,000 new jobs were created in the United States in March, well above market expectations of 200,000. The release of this data further boosted the US Dollar Index and intensified the sell-off in US Treasuries. This in turn triggered the rally in international gold prices. Furthermore, the US Consumer Price Index (CPI) rose 3.5% in March, which was higher than expected and marked an acceleration in inflation. Over the weekend, inflation fears were fuelled by Iran's attack on Israel and its potential impact on oil prices.

On 10 April 2024, the global gold price surged to a new record high, triggering a domino effect in the financial markets. The silver price rose rapidly, by more than 20%. On 11 April 2024, the international silver price reached a nearly 3-year high.

The logic behind the rally in silver and gold is somewhat similar. It comes at a time of heightened global geopolitical risks, ongoing tensions in the Middle East and high inflation. Remarkably, the economy remains resilient. In a context of heightened political and economic uncertainty, it is not surprising that silver's safe-haven appeal from an asset allocation perspective has continued to grow.

Unlike gold, which is mainly used for jewelry consumption and investment, silver also has industrial demand. This means that its commodity characteristics are more important. Reasons for the rise in the silver price include the rise in the gold price, increased industrial and investment demand and the impact of the geopolitical situation.

In recent years there has always been a certain gap between supply and demand for silver. The supply and demand of silver itself is tight, but not enough to support the high price of silver as we can see now. Global silver demand is forecast to reach 1.2 billion ounces in 2024, which, if achieved, would be the second highest level on record. In line with the trend of recent years, the photovoltaic (PV) and automotive industries will remain the main drivers of growth this year.

Total global silver supply is forecast to increase by 3% to an eight-year high of 1.02 billion ounces in 2024, driven by a recovery in global production from all mines. As a result, the gap between global silver supply and demand is forecast to remain high at around 0.18 billion ounces in 2024.  In addition, the PMIs of the world's major economies have been gradually improving over the past four to five months. India, the world's largest consumer of silver, has seen its silver imports in the first two months of this year reach 80% of last year's total. This has been driven by strong demand from the manufacturing sector and lower tariffs, providing strong support for the silver price.

There is another important factor that cannot be ignored. Since the launch of ChatGPT in 2022, AI has received unprecedented attention around the world, which is reflected not only in the enthusiasm of people and the influx of funds, but also in the most critical computing power performance. This is because the computing power required by AI places extremely high demands on the heat dissipation performance of components. Silver has the highest thermal conductivity of all metals. Silver also has the best electrical conductivity of any common metal. That's why silver is known as the "most undervalued AI metal".

In conclusion, the strength of gold, low silver inventories, the supply/demand imbalance and silver's dual attributes could continue to push silver higher despite the recent spike. In our view, the silver price may find it difficult to pull back in the short term.

Silver future (in USD per ounce), one-year daily chart