For most of this year, the prices of precious metals like gold and silver have been moved by U.S. monetary policy, dollar strength and geopolitical developments. Today, silver’s industrial demand is seeing a new segment gobbling up the metal in ways that are bound to support silver’s price for many more years to come.
That new demand source is the AI boom, particularly AI data centers. As a metal, silver has superior electrical and heat conductivity properties. It trounces copper and aluminum by a large margin, and those properties are exactly what data centers need.
The use of silver for electrical applications has in the past been minimal because of the high cost of the metal. The economics didn’t add up and manufacturers opted to use alternatives to silver or to use a very small amount of the metal in order to keep the final cost of the product within a range that buyers would be comfortable with.
AI data centers are a totally different game. Connectors, power units, switchgear, busbars and other sensitive components require huge amounts of electricity to flow through them, and silver is the only currently available metal that meets that requirement.
At the same time, those components have to work round the clock, so it is not possible to schedule downtime so that the equipment can be cooled. The parts therefore have to be made from a material that can conduct heat away quickly so that the sensitive equipment remains within a tight temperature range. Guess which material is up to that task? Silver, of course.
Now here is where things get interesting for the silver market. AI hyperscalers are projected to spend nearly $8 trillion on AI infrastructure buildouts between this year and 2031. Most of that money will go to building data centers, which means lots of silver will be needed in that buildout.
In the past, the industrial demand for silver has largely been centered around solar panels and electric vehicles. Now a third cog, AI data centers, has been added to the mix and this third one is expanding rapidly. Data centers are springing up everywhere and there seems to be no sign that this expansion will slow down any time soon.
According to available data, a supply deficit of silver has persisted for six straight years. Now a lot more silver is going to be needed to address the needs of the data centers being constructed, but no answer exists on how silver supply can be ramped up quickly enough to meet this demand.
A sizeable chunk of the silver reaching global markets is a byproduct of the extraction process of other minerals, and few mines focus on silver mining. When exploding demand meets constrained supply, a structural bull case solidifies. Savvy investors are positioning themselves for this long-term bull case, and exploration firms like New Pacific Metals Corp. (NYSE American: NEWP) (TSX: NUAG) focused on silver are also well positioned to benefit from the tailwinds converging in favor of this precious/industrial metal.
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