Out of all the possible drivers that could push silver up into the sky, Keith Neumeyer, CEO of First Majestic Silver, thinks governmental policies might just be the thing. But instead of loose fiscal ones, it’s the tightening grip on gasoline vehicles that’s shaping up to be a massive driver. In an interview with Kitco, the CEO spoke about the changes in the automotive industry that are taking place, driven partially if not wholly by governments favoring electric vehicles (EVs) over carbon-dioxide-spewing internal combustion engines.

The view that engines of the latter are polluting the environment might have opposing sides in general terms, but it has swept governments around the world by storm. With countries like the U.S. and U.K. already preparing to ban sales of traditional vehicles, it does appear that an automotive revolution is underway. And it just so happens to be one that will heavily favor silver.

Neumeyer has always been extremely bullish on the metal, having previously forecast that it could hit triple digits in the long-term. Now, he sees silver going towards the higher end of that triple digit range due to basic supply and demand dynamics. Silver’s supply picture has always been a lackluster one, with the metal mostly coming in as a byproduct of mining other metals (copper, lead and zinc primarily). Only 28% of silver mines primarily produce silver. This means that silver miners are slower to respond to rises in spot price. They have to consider the costs and value of the other metals they’re digging up.

There’s a grassroots movement of physical silver investors who believe that the paper silver market is heavily manipulated, and that there is nowhere near enough silver to cover the contracts. Neumeyer gives this theory his backing without citing evidence.

Interestingly enough, while Neumeyer acknowledges that QE and U.S. dollar debasement will boost gold and drag silver along the way, he views these drivers as considerably less important. Instead, he is looking towards the amount of available silver against the prospect of ever-growing demand from the industrial side.

As Neumeyer noted, the mining industry currently produces 800 million silver a year, of which 100 million already go towards EV production and another 100 million towards solar panels. Combined, that makes up close to 20% of annual production. Neumeyer points out that the automotive industry currently produces 19 million cars a year, of which 5 million are EVs.

If the governments of the world get their way, every gasoline vehicle will be replaced with an EV within a decade or two. Neumeyer says that this amounts to roughly a billion cars, which obviously puts quite a strain on the automotive industry and therefore silver miners.

With 100 million ounces of silver needed for every 5 million EVs made, it’s clear that even a slight increase in EV demand could quickly shake up prices. It’s definitely looking to come together nicely with growing demand for physical silver among investors, many of whom are staunch believers that the price is being suppressed through derivatives and that it should indeed be closer to Neumeyer’s forecasts than its current levels. Given the silver shortages in various top mints around the world as of late, the theory is not an easy one to dismiss.

Reuters reports that February’s social-media driven rush to the paper silver market might not have lived up to expectations, but it nonetheless shone a light on a metal that has no shortage of tailwinds going for it. The frenzied army of day traders who hoped to bring silver’s price to three or four-digit figures came and went. But some of them have stuck around, bolstering a growing and diverse congregation of silver investors.

Who’s holding silver now?

New fans of silver include retail buyers who see plenty of appeal in the metal past any short-term buy signals. Holdings in the largest silver fund rose by 45% last year to reach more than 1 billion ounces, the highest amount on record. Individual investors and money managers alike were quick to jump on the silver wagon amid unprecedented panic and concerns over currency debasement after a historic monetary stimulus.

Most of these investors have held onto their silver, joining the ranks of Wall Street giants who have been stockpiling silver due to its abundant uses. Goldman Sachs’ hoard has continuously emerged as the most prominent one, with its analysts calling it their favorite metal for both economic and industrial reasons.

Where are silver prices going?

While silver hit an 11-year low of $11.62 as industrial activity slowed to a crawl in March, it appears the course is being reversed. Besides the recovery from the manufacturing sector, silver’s industrial case continues to be bolstered by a push towards green infrastructure. While this might not do much for silver’s outlook in the short-term, both the U.S. and China have committed to reaching carbon neutrality over the next few decades, with the Asian nation sporting a five-year green infrastructure plan that has captured the attention of many.

This leaves short-term price predictions which could swing either way, but are nonetheless very much aligned in silver’s favor at the moment. The Silver Institute forecasts an average silver price of $30 for 2021, just short of its current $28 valuation. Given silver’s known volatility and taking into account that the year has only begun, this could very well translate to some explosive price action to the upside over the coming quarters.

The latest Commitments of Traders Report shows that money managers, by and large, remain bullish on silver’s prospects. For the most part, retail investors are quick to buy into silver dips and far more reluctant to take profits. Combined with the influx of new investors and lots of favor from old ones, February’s frenzy may turn out to be the first of many interesting developments in the silver market.

With so much focus on the surge in investment demand for silver and the surrounding bullion shortages, it’s easy to forget that the metal remains a key component of a rapidly-expanding industry. A recent forecast by The Silver Institute placed the average annual target for silver at $30, a 46% climb compared to last year that will be driven not only by investment and jewelry demand but also the growth of the photovoltaics (PV) industry.

In a statement, the institute said that this year’s demand for silver is expected to reach 1.025 billion ounces, and that the metal will therefore shed any losses sustained last year. Talking to the magazine, The Silver Institute’s executive director Michael DiRienzo expanded upon some of the industry’s underpinnings, along with what it would take for the sector to create a supply glut similar to the one happening in the investment sphere.

How solar panel “thrifting” influences demand

The institute, as well as other experts in the field, have continuously singled out thrifting as one of the most important parts of industrial silver demand. The process refers to manufacturers’ efforts to reduce the amount of silver necessary in each solar cell due to the metal’s high price. This form of cost-cutting has brought the silver contents in an individual solar cell to an average of 111mg in 2019, and The Silver Institute expects the trend to lower the per-cell silver content to 80mg by 2030.

However, it has been repeatedly stated that thrifting is a process which peaked out in 2016, and that the sector can only spread the silver in a given cell so thin. On the flip side, DiRienzo noted that a growing number of countries are turning to solar panels, adding to a broader bid by global governments to look for green energy solutions.

With current technologies, silver accounts for about 6% of the total cost to produce a photovoltaic panel.

Despite thrifting, solar demand for silver grows

Keeping this in mind, DiRienzo said that the institute expects the PV industry to purchase 105 million ounces of silver this year, a significant increase compared to the 88 million ounces last year and 93 million ounces in 2019. As for price changes, DiRienzo said that silver could once again outperform gold due to its smaller market and higher volatility. The director went on to say that an average annual price of $40, or peak prices of $45, would create a problematic environment where the silver industry begins facing supply issues, especially due to the absence of further cost-cutting methods.

This is especially important considering the slow decline in global silver production over the last four years. Because nearly 75% of newly-mined silver comes from projects where it’s a by-product of the primary metal being mined (usually copper, lead, or zinc), silver supply isn’t elastic. If demand does reach a critical level, supply can’t be expected to increase quickly or at an equivalent magnitude.