|
The numbers for silver demand are starting to make some
market-watchers nervous. The U.S. Mint sold over 6.4 million silver Eagles in
January, more than any other month since the coin’s introduction in
1986. China’s net imports of silver quadrupled in 2010, to 122.6
million ounces, roughly 13.7% of global production. Meanwhile, mine production
can’t meet worldwide demand; the only way demand gets fulfilled is from
scrap supply.
That is some very hungry demand. Which raises the question, how long can this
pace continue?
This is important for various reasons, starting with how demand contributes
to price. If demand falls off, our investments could, too.
While
I’ve discussed the concern regarding the lack of supply before, which has its
own implications for the silver market, let’s focus on investment
demand. Frankly, is there room for it to continue to grow? After all, how
long can investors continue to set records?
There are a number of ways to measure this – the amount of money
available to invest, its percent of total financial assets, its contrast to
demand in the last bull market, etc. – but I think the bottom line to
answering the question is to compare the biggest silver investments to some
popular equities. If they rival that of the stocks we always see on the news
and analysts constantly talk about and every fund manager wants to own, then
it might be reasonable to assume demand could be nearing its pinnacle.
So how do the world’s largest silver ETF and one of the biggest silver
producers compare to the more fashionable equities?
The largest silver ETF, iShares Silver Trust, has
net assets of $9.6 billion (as of February 4). This pales in comparison to the
more popular stocks trading in the U.S. In fact, SLV has roughly 3% the
market cap of Apple. It would have to grow over 43 times to match Exxon
Mobil.
Pan American Silver, the largest pure silver producer trading on a major U.S.
exchange, has a market cap of $3.72 billion. This is 4.7% the size of
McDonald’s. The market cap would have to increase more than 53 times to
match Walmart. It is over 62 times smaller than
Microsoft.
This isn’t to suggest SLV and PAAS will match the market cap of these
other companies, but clearly the masses are still demanding much more of them
than the biggest of silver’s investment vehicles.
So how much more demand can silver handle? As much as it takes to make it the
household name I’m convinced it will be before this is all over. When
SLV is a favorite of fund managers. When Silver Wheaton is a market darling
of the masses. When Pan American is Wall Street’s top pick for the
year.
Imagine what those bars on the right will look like when most everyone you
know is talking about poor man’s gold. The
rise could be breathtaking.
Remember that silver rose over 3,646% from trough to peak in the last
precious metals bull market; it’s up about 630% in our current run. A
return matching the 1970s advance would push the price to $152. This price
level is further supported by the fact that this is about where it would be
when inflation-adjusted for its 1980 peak.
When you look at the potential growth in market cap of the world’s
biggest silver investments, it becomes easy to view any downdraft in price as
nothing but a buying opportunity. I know I do.
[The current edition of BIG
GOLD includes naming the cheapest one-ounce bullion coin on the market right
now, plus a new gold stock pick that has incredible growth potential. Get all
this and more for only $79 per year, including a 3-month trial with full
money-back guarantee. Details here.]
Jeff Clark
BIG GOLD
|
