According to the latest Kitco News report, the commodity team at BMO Capital Markets noted in a new report that silver’s most important growth engine—the photovoltaic solar sector—is showing signs of fatigue, and investment demand is expected to be insufficient to offset the resulting demand gap. The team, led by George Heppel and Helen Amos, believes the gold-silver ratio has entered a structural uptrend and is expected to trade around 85 points over the next four years, up from the current 76 points.
The core logic of the report is that the solar sector is “suffering from its own success.” The analysts pointed out that global renewable energy capacity has grown faster than the infrastructure needed to accommodate it—grids, interconnectors, batteries and other sources of flexible demand simply have not kept pace—and the problem of renewable energy oversupply is beginning to emerge. This means that new silver demand from solar installations will slow.
More critically, silver prices briefly exceeded $120 per ounce earlier this year, creating an enormous incentive for solar manufacturers to accelerate “thrifting”—and increasingly, replace silver altogether. The analysts said photovoltaic silver intensity had already been on a downward trend in recent years, and high prices have further reinforced this process.
BMO pointed out that the real problem facing the silver market is that falling industrial demand could undermine its core investment thesis. Robust industrial demand over the past few years has significantly depleted above-ground stockpiles, leaving the market vulnerable to supply shocks and price volatility. Investors have therefore flocked into the market, anticipating that higher prices will be needed to meet demand. However, BMO expects weakening solar demand to eventually reverse years of supply deficits.
The report stated: “On our estimates, the consumption surplus rises to a historical record high by 2030, driven principally by the reversal in solar demand. Those excess ounces still need to find a home, and history suggests that doing so requires silver to trade at a sufficiently low relative price to incentivise investors to absorb them.”
Although investment demand is expected to remain a key pillar of the market, BMO made clear that it will not be enough to offset the loss of demand from the solar sector. For silver not merely to hold today’s elevated price but to continue marching higher while solar demand contracts, investors will need to absorb an unprecedented quantity of surplus metal at an increasingly high dollar cost. The report wrote: “The bull case increasingly requires investment demand not just to remain strong, but to remain exceptionally strong for years.”
This judgment forms a subtle contrast with current market performance. As fears that rising inflation could force the Federal Reserve to hike rates aggressively next month weighed on gold, gold prices fell more than 1% on the day, while silver performed noticeably more strongly, holding above $51 per ounce with a gain of 0.68% on the day. The short-term decline in the gold-silver ratio and BMO’s expectation of a medium- to long-term structural uptrend reflect the market’s divergence over whether silver’s industrial attributes or financial attributes will dominate. BMO’s report essentially signals that silver’s long-term bull narrative is facing a fundamental test: with solar—its largest source of incremental demand—peaking and rolling over, whether investment demand alone can absorb record surplus supply will be key to determining the center of gravity for silver prices.