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The Silver Market in 2013

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Published : November 14th, 2013
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Yesterday Thomson Reuters GFMS released their latest report on the silver market. We take a look at it and assess what it means for the silver price.

There are several factors, some positive and others negative, that will affect the price of silver going forward.

First up, let’s have the not-so-good news facing the silver price.

In 2013, total supply of silver is expected to climb by around 0.7%, much of this is thanks to the 7% or 28 Moz (million ounce) increase in mine supply but offset by the 8% decline in scrap silver supply.

This leaves the silver market in a residual surplus of 287 Moz (forecast for 2013).

Of course, the other glaringly obvious negative issue for silver is its role as a safe haven during times of economic turmoil, inflation etc. With rumours that everything will suddenly be fixed where does this leave silver along with its gold friend? Well, as we describe below, silver investors don’t seem so convinced that all is well and that they can turn their backs on the safe haven just yet. Added to this silver is an increasingly industrial metal, perfect for a global recovery.

Gold and silver

So far in 2013, silver has suffered more than gold having fallen by 29% so far to gold’s 22%. Currently the gold silver ratio is around 60 and has averaged 59.4 in 2013. Whilst we frequently refer to the historical average being 15:1, 60:1 has in fact been the average since 2000.

The current silver to gold price ratio favours buying silver. This hasn’t gone unnoticed. Eric Sprott recently reported that coin and bullion sellers are seeing equal amounts of capital being spent on gold and silver, meaning 60 times more ounces of silver being purchased than gold.

In the past three years the ratio has been around 55 therefore the currently higher ratio is very much seen as a positive by the authors of the report who suggest that this may set the metal up for outperforming the gold price in the coming months.

Speaking of outperforming gold, in previous episodes of quantitative easing announcements, silver has outperformed gold – between December 2008 and March 2010 it gained 53%, almost double that of gold.

Silver investment

In the last ten years demand for silver as an investment has climbed from accounting for just 4% of total demand to 24%.

Whilst silver might appear to be a better buy than gold, it is in fact rarer than the yellow metal when it comes to investment purposes. Eric Sprott believes the ratio of investment grade silver to investment grade gold to be 3:1. Sprott calculates that there is in fact only 120 million ounces of gold and 350 million ounces of silver available for investment.

Whilst gold ETF outflows are regularly blamed for the fall in the gold price. The same cannot be said for silver ETFS and the silver price – so far in 2013 silver ETF holdings have risen throughout the year reaching a high of 650 Moz.

Holdings of SLV are ‘much more diverse’ according to Ted Butler than those of GLD, for example institutional holders of SLV only account for 16% of total holders, compared to 41% in GLD. Therefore when we see huge sell-offs, the majority of SLV holders remain where they are, indicating they’re in it for the long-term.

Silver coins

Of course the other big story surrounding silver has been the dramatic increase in total fabrication demand which is expected to climb by 4%. This is mainly thanks to the 19% climb in silver coin demand for which the US is mostly accountable for. Between 15 million – 20 million extra ounces of silver have been fabricated for coin production this year compared to 2012.

This year silver fabrication for coins has climbed by over 15 million ounces. Silver coin demand is forecast to increase by 19% in 2013 – a hefty recovery after experiencing a dip in 2012.

Gold has also suffered somewhat on the draconian measures taken by India’s government over gold imports. But what is gold’s loss is very much silver’s gain – between January and August this year Indians imported 4,073 tonnes of silver compared to the 1,921 tonnes in the whole of 2012. The role of silver has an alternative to both gold and sovereign currencies is very much coming into play.

Industrial silver

One of the other many reasons being touted around to explain the fall in the gold price is the global economic recovery. Again, unlike gold, silver is a highly industrial metal and will stand to benefit from this after two years of contraction when the authors expect industrial offtake to rise by 1% in 2013 on the back of improved global economic activity.

China and silver

Like gold, China is officially the shining light of the silver investment market. It is now, according to a Silver Institute report, the world’s largest market for physical investment and paper trading of silver futures. Not only are they big on investment, their supply of silver is also growing rapidly, increasing by 281.5 million ounces between 2002 and 2011. Also, by 2011 demand for silver bars and coins in China accounted for 8% of worldwide net purchases of silver, soaring to 17 million ounces.

The report, entitled The Chinese Silver Market, foresees further growth in both supply and demand thanks mainly to state-owned Chinese mining companies’ investment in expansion, and the increase in silver fabrication demand which has grown by 137% in the last 4 years.

So, what does all this mean for the silver price? The authors of the report forecast an average price of $24.24 in 2013. So far this year, the average price is $24.51. A short-term forecast is for gold to trade between $20.20 – $23.70 between now and year-end.

What do you think all this means for the silver price? Tell us in the comments below or join in the discussion in our G+ Gold Silver Bugs Community

Data and Statistics for these countries : China | India | All
Gold and Silver Prices for these countries : China | India | All
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Jan Skoyles is Head of Research at The Real Asset Company, a platform for secure and efficient gold investment. Jan first became interested in precious metals and sound money when she met Ned Naylor-Leyland whilst working alongside him in the summer of 2010. Jan then went on to write her undergraduate dissertation on the use of precious metals in the monetary system. After graduating from Aston University Jan joined The Real Asset Co research desk. Her work and views are now featured on a range of sites including Kitco, GATA and The Telegraph. She has appeared on news channels including Russia Today to discuss the gold price and gold investing. You can keep up with Jan's commentary by subscribing to our RSS feed Gold Investment News.
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Do you mean silver?
"A short-term forecast is for gold to trade between $20.20 – $23.70 between now and year-end."
Jan:

Your statement about an improvement in global economic conditions flies in the face of reality. If you mean that things are appearing more rosy because the US, Europe and Japan have joined the money printing game then you need to understand that this is not the same as a real solution to the debt crisis. It could all end badly and the clock is still ticking in that respect.

The reason solver and gold prices have increased is BECAUSE investors worldwide are worried that things will not return to normality without much more pain.
Hey Glyn G:

I can't explain the grammar, but on the rarity issue I may be able to help.
According to this article, in terms of existing physical metal, there a 3 oz of silver for every 1 oz of gold, so nominally,
the simple answer is that silver is only one third as rare as gold, in physical quantity terms.

But there's a snag: according to the article, the silver to gold ratio as measured by price is 60 to 1, in price/value terms.

So, in terms of over all value, you would need 60 oz physical ounces of silver to match every physical ounce of gold in order to make all the silver on the planet
equal to the value of all the gold on the planet, right?

But we only have 3 ounces of silver for every one ounce of gold, not 60.

That means if you divide 3 by 60, you get 0.05!

So in terms of physical-value rarity, there is only 0.05 oz of silver for every 1 oz of gold, when value
is taken into account.

That's why the article claims silver is rarer than gold.

Clear as mud? You bet!

I am not real sure that the 3:1 figure of available metal is correct. It was always my understanding that there was much more silver in existence (and being mined) than gold. One needs to question where the figures came from.
The price of silver has little to do with my reason for buying about an ounce a month. I was buying at $18, I was buying at $40 and I'm still buying at $21. I can't imagine selling, but I can visualize giving silver for food, clothes, gasoline, and maybe even ammo. Wouldn't it be nice if these articles on the Future of Silver would point out the potatoes, celery, onions, chickens, steaks and mushrooms you'll be getting in The Silver Marketplace ?? I'm more curious about the Silver Marketplace than I am about the high demand for silver in India and China: although I'll bet the people in India and China are curious about the same market.
Can anyone make sense of this paragraph for me please??

"Whilst silver might appear to be a better buy than gold, it is in fact rarer than the yellow metal when it comes to investment purposes. Eric Sprott believes the ratio of investment grade silver to investment grade gold to be 3:1. Sprott calculates that there is in fact only 120 million ounces of gold and 350 million ounces of silver available for investment."

Clear as mud. In what way can something be rarer when it is available at the ratio of 3:1? Does it mean rarer relative to its cost or what? That might make sense. So silver is a 50th of the cost of silver but rather than being 50 times more abundant it is only 3 times more abundant. So that does make silver a better buy than gold then doesn't it? Whats your point?

Also it's a bit of a moot point as we have already seen that turning industrial silver into 'investment silver' is not a problem if the price is right. Witness the extraordinary quantity of gold that has been refined through Switzerland this year, for resale in China. Where there's demand the refineries will get busy.

It bugs me as well when articles like this suggest that somehow investment demand is taking Silver out of circulation for good. Almost everyone that 'invests' in silver wants to offload it at a higher price, as it doesn't provide a return. It's still there...it's just waiting to be exchanged for something else. A huge and growing pool of it. (Maybe they are waiting for a day when they can redeem it against a PM backed currency or they are hoping they can spend it directly on other assets.) All the same it'd be better to concentrate on industrial demand which genuinely sucks silver out of the system never to return.

A couple of inaccuracies on your part Glyn. The most glaring is your belief that industrial demand ensures that this silver disappears forever. It doesn't. With increased recycling of electronic components a good part of this recoverable.
Here is your recycling...
http://www.youtube.com/watch?v=-mj4Wd_rmvM
Just my opinion, but $20-22 is more probable through the end of the year.
Would I buy at these prices?
The more appropriate question is do I trust the valuation of the USD, EU or Pound to hold up?
I ain't selling anything. Do as you will, but you might wanna ask the same question.
Half a chicken in the pot beats the snot out of stone soup.

Next year?
I'm not a soothsayer.
Half a chicken in the pot ain't so bad.
But what if ... ?
Or you could buy some Twitter shares and live off the dividends.
Latest comment posted for this article
Here is your recycling... http://www.youtube.com/watch?v=-mj4Wd_rmvM  Read more
JerseyJoe - 11/15/2013 at 1:23 AM GMT
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