The price of silver has surged to nearly $23 as geopolitical tensions deepen, increasing the appeal of bullion. The white metal is seeing significant buying interest as volatility expands due to the ongoing crises in the Middle East.
Geopolitical tensions have been heightened following an aerial drone attack in northeastern Jordan which killed three US service members. Meanwhile, continuous attacks on commercial shipments through the Red Sea have kept broader markets on their toes.
However, White House National Economic Council Director, Lael Brainard, said last week that Iran-backed Houthi attacks on ships in the Red Sea appear to have less impact on their supply chain against other economies.
This week, the Federal Reserve’s first interest rate decision of 2024 takes center stage, announced on Wednesday. Market participants expect the Fed to hold rates steady in the 5.25-5.50% range for the fourth time.
source: tradingeconomics.com
Investors will keep a close eye on whether Fed policymakers soften their stance on “restrictive interest rates” in light of the moderate December rise in core PCE price index data released last week.
Simultaneously, Silver usage in Indian solar plants is increasing.
India’s rapidly growing middle class has resulted in a significant increase in energy demand, with the country turning to solar power as a solution. This trend is also contributing to the growing demand for silver, as solar projects use more of it each year, further adding to the annual silver production deficit.
In 2023, India’s electricity generation increased by 8%, with solar energy accounting for 20% of that growth. Although India added 12GW of solar in 2023, it would need to increase the growth rate by four times just to match coal power in absolute terms. This means that India requires 48GW of solar energy to match coal power, which would require using 24 million ounces of silver.
This is crucial for India’s energy transition, as 75% of the country’s grid still relies on coal power, even more than China’s 60%, which is rapidly increasing. The utilization rate of India’s coal-fired power plants also increased from 53% in 2019 to 68% in 2023, which may lead to the construction of more coal plants.
The estimated levelized costs of partial electricity are 4-6 c/kWh for unabated coal and 5-8 c/kWh for utility-scale solar, both at 10% hurdles.
India’s Electricity Demand and Power Grid Over Time
India’s electricity demand is increasing by 6-8% per year, which requires more power generation capacity. Currently, 75% of India’s power comes from coal, which is growing at a 5% CAGR over the past half-decade. Wind and solar would need to grow 4x faster than their 2023 levels to balance the thermal generation.
India is the world’s largest country by population, but it only uses 6% of total global energy, 6% of total global electricity, and emits 6% of global CO2. As India’s energy demand grows, it could potentially affect global energy markets in the late 2020s.
India’s power grid capacity has grown by 15GW per annum over the past five years, with solar and coal-fired electricity added in equal proportions. However, coal-fired generation has grown at a 1.5% pa CAGR over the past five years, and coal utilization rates have increased from 53% in 2019 to 68% in 2023. This implies that new coal-fired generators may be needed to meet the increasing power demand.
To improve India’s power grid efficiency and reduce losses, transmission and distribution need to be strengthened. Furthermore, India’s power grid experiences extreme seasonality, where hydro and wind availability varies throughout the year, leading to high demand for thermal generation during certain months.
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