There is no question that 2021 gold and silver prices generated strong debates among investors and analysts regarding precious metals' performance numbers. But with the start of the new year, many investors and analysts are highly optimistic about silver’s potential of outperforming gold in 2022.

Silver struggled in 2021, down 13.5% year-to-date. The precious metal was held down by many strong market factors ranging from mixed economic data, lower industrial demand, and a stabilized dollar toward the end of the 4th quarter. 

Despite the stabilizing dollar, analysts continue to be bullish on both silver and gold. With increased fears regarding rising inflation rates and slower-than-expected economic growth around the world, the precious metals market might get the boost it deserves.

Demand for silver weakened in 2021, most notably in the industrial use sector. Silver is a hybrid precious metal, used heavily in the industrial sector and amongst investors as a hedge against inflation. With manufacturers cutting down production due to supply and energy shortages, supply chain bottlenecks, and government-mandated shutdowns, demand for silver has decreased significantly, leading to excess market supply. 

Investors are taking advantage of decreased industrial demand for silver, looking at the precious metal as a bargain compared to gold. The gold-silver ratio is now 80:1 - an attractive ratio for investors.  

What key macro drivers to look for in 2022?

The key macro drivers for silver one should pay attention to for the new year will be the industrial outlook and inflation indicators. Factors that helped silver maintain stable prices for 2021 were a weakened US dollar, increased inflation, lower GDP, and inferior bond yield returns compared to previous years. 

With the Fed finally admitting that inflation is not transitory and doing little to control inflation compared to other central banks, analysts predict that inflation could break all-time levels for 2022. 

Another factor to consider is the Fed’s promise of increasing interest rates and ending its bond buyback program. Traditionally, gold does well when the central bank increases interest rates. With silver prices trending similarly to gold, prices are predicted to go higher for both metals.

Why is the Industrial component of silver so important?

Silver’s stagnant price in 2021 was partly due to the metal’s industrial component. Silver is used for many industrial purposes like jewelry, tableware, soldering and brazing, medicine, solar technology, cars, electronics, and water purification. Rising energy costs and supply chain bottlenecks reduced manufacturing output, and thus usage of the precious metal. 

Demand for silver amongst the industrial sector depends highly on government restrictions to commerce and manufacturing lockdowns. If COVID19 restrictions are lifted and manufacturing levels normalize to pre-pandemic levels, silver demand can spike significantly.

Government and corporate investment in the renewable energy sector will also add to silver demand to increase as well. With global decarbonization initiatives and major shifts in the use of solar energy accelerating worldwide, we will see a benefit to owning silver bullion.

According to Bank of America commodity strategists, "Increased investment into solar panels should boost silver. Using the IEA's Net Zero scenario, silver demand from PV could hit 8550 tons by 2030, compared to 2,900 tons in 2020."

What prices do analysts predict for silver for 2022?

Many prominent market analysts project that for 2022 silver’s price will range anywhere from $24 to over $30 an ounce.

The Australia and New Zealand Banking Group Limited (ANZ) wrote in a note to clients: “Silver is likely to largely follow gold, but the market balance looks supportive through 2022. The electronics sector, along with strong solar and electronic vehicles, has helped industrial demand to recover to the pre-pandemic level of 556moz this year,

Commerzbank analyst Carsten Fritsch believes silver could reach $26 an ounce in 2022.

"Silver plays massive catch-up rally to gold. And if gold gets to $10,000 in this decade and the gold-silver ratio gets down to 20:1. That's $500 silver. It will be the decade of shortages, and everyone's going to get poorer except for the people that own physical gold and silver." says Leigh Goehring managing partner at Goehring & Rozencwajg Associates.

Analysts at Scotiabank predict silver prices could average $25 per ounce. ABN Amro analysts are a bit more bearish on their stance of silver future spot price, expecting that prices could decline from an average of $23.50 per ounce in 2021 to $22 in 2022.