Silver prices across the globe are dropping, thanks in part to decreasing demand in China and other countries. Chinese demand for silver bullion fell 52% between 2013 and 2014, and total global demand fell 31% in the same year.
While prices are declining, silver production continues to be healthy. Silver production saw its 12th straight year of increases in 2014, making supplies the highest in four years. Even with this level of growth, the market saw a supply deficit of 4.9 million ounces in 2014.
In India, imports of silver are increasing, reaching a record high of 220 million ounces last year. This was an 18% increase over 2013. Many Indians purchase silver for use in the production of jewelry, while others purchase jewelry outright, causing a 47% increase in jewelry demand in 2014. Only 40% of global silver demand is accounted for by jewelers and investors, with 56% of demand coming from the industrial sector.
Silver comes from many different sources, with 16% of total global supply sourced from scrap. An estimated 83% is mined, with 70% of global silver supply a byproduct of mining other metals, like gold, lead, copper, and zinc. The prices of these metals will directly affect levels of silver supply.
Two factors directly affected the lack of Chinese interest in silver in 2014 and early 2015. First, the Chinese economy grew by 7.4% in 2014, but consumers remained cautious and reduced spending. Luxury items, like jewelry, felt the effects of this caution the most. Second, in February 2015, the Chinese government began anti-corruption measures, which decreased the amount of silver bars being gifted to family members by corrupt officials.
Economists predict that the price of silver will fall to approximately $16.50 per ounce, from the record $19.08 seen in 2014.