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The Silver Price is hitting new
recent highs at $36.55 today in a more vigorous performance than even gold.
Many in the developed world precious metal markets are amazed at the
performance of silver and see this continuing, whereas others feel it is
running away with itself. The "backwardation" in silver [when
'spot' - or immediate delivery prices are higher than for future delivery]
has stressed just how much immediate demand there is for silver and clearly a
physical shortage of the metal has arisen. There are two apparently
conflicting pictures of the role of silver. The industrial side of silver
demand, currently thriving and the investment side, which is also thriving
and should continue to do so.
Industrial Fundamentals excellent
Overall the fundamental outlook has favored large price
rises in the metal. After the use of silver in photography was heavily
lessened by the advent of digital photography, many thought that that was the
end of silver, but its price continued to rise when gold rose and fall when
gold fell. Then came many revolutionary uses for silver in the medical field
and the electronic field where demand is growing rapidly. Today, industrial
uses account for 44% of worldwide silver consumption.
Still, it continues to be mined as a by-product of base
metal mining with little need for solely silver mining alone, until now.
Today, we find that the number of silver miners is growing fast as the metal
costs only around $4 per ounce to produce. At a current price of $36 this
makes it a dream metal to mine. But it will take some time for silver mining
to catch up to growing demand, a few years at least. While there are huge
supplies of silver still untouched [whereas replacing the gold mined is
getting an increasingly more difficult task] we do see the flow of silver
supplies growing fast in the future. Eventually this will slow the rise in
the price of silver to the pace of gold price rises. And yes, we may see a
rapidly growing supply of silver from scrap or re-cycling sources in time,
which may slow down demand in addition to rising supplies. But again, this
will take some years still after which we will see a change in silver's price
patterns.
Meanwhile, demand growth from not only the developed
world, but from the emerging world should continue to outweigh such new
sources of supply. The last year has been an eye-opener in the silver market
as we watched China turn from a net exporter of silver to a net importer.
China had gross exports of 1,575 tonnes of silver last year, down 58% from a
year earlier. China's gross imports of silver increased 15% to 5,159 tonnes
in 2010. In 2005, China was a net exporter of nearly 3,000 tonnes of silver.
Last year, in 2010, China was a net importer of more than 3,500 tonnes of
silver. Incredibly, Chinese net imports of silver surged four fold in just
one year from 2009 to 2010. We fully expect this growth of demand from that
source to continue in 2011 and possible for the next decade.
Demand for silver in China has risen sharply in recent
months and years. Growing middle classes and savers in China, India and other
Asian countries have been turning to "poor man's gold" and using
silver as a store of value. Gold has risen above its historical nominal high
in local currency terms internationally and silver is seen by many as a
cheaper alternative.
Official Selling
For decades we saw 'Official selling' of silver as three
governments sold off their stockpiles of silver [that had once been the
coinage of the land]. The three countries were India, China and Russia. Today
there is a negligible amount of silver sold by these three previously large
suppliers. Such a withdrawal of large supply lines has ensured demand outweighs
supply. There is little likelihood of these suppliers re-appearing.
Investment demand
·
With that
in mind investment demand has come in as a new source of demand. The main
vehicle through which silver is bought for investment in the developed world
is the Silver Trust (NYSE: SLV) which
now holds 10,794.79 tonnes of gold [347,063,746.900] ounces currently.
·
While COMEX
is not a physical market for silver [only 5% of the deals done there involve
the movement of actual silver], the gradual drain of COMEX silver inventories
seen in recent months continues and COMEX silver inventories are at 4 year
lows. Total dealer inventory is now 1,311.35 tonnes [42.16 million ounces]
and total customer inventory is now at 1,887.40 tonnes [60.68 million
ounces], giving a combined total of 3,198.97 tonnes [102.847 million ounces].
·
To an Asian
investor with a limited amount of savings, silver is proving a more than
credible alternative to gold. The price of silver has, this century, followed
that of gold. It falls further and rises higher than the gold price, but goes
up when gold does and falls when gold does. We believe it will continue doing
so for the foreseeable future.
Silver as a Monetary Asset
Silver has been money since man's history began. History
shows that it has always been linked to gold as coinage. Until 1946 even in
the U.K., silver was used as coinage. The use of silver as money has
now been withdrawn globally. It was from the stockpiles of old coins that the
bulk of "Official" silver sales have only just been completed. It
may well be that the monetary authorities of the world have no intention of
using silver as money in the future. That does not detract from silver being
used as an ideal retainer of wealth. Silver and gold will always be
universally accepted as 'giving a sense of stability of the money system'
[quote from Alan Greenspan this week]. That's why it is being accumulated as
an investment now. A look at the darkening future of the current monetary
system reinforces the thought that these two metals will protect one's
wealth.
We don't believe that central banks will go back into the
silver market again, because they will not see silver as they see gold, as
the ultimate form of money. It will remain such in an individual's mind as
well. After all, silver is also U.S. $5 Silver Certificate universally
accepted as a lesser value money. We feel that its price will continue to
confirm that. We emphasize that in the cases of both gold and silver, a
monetary role for them is not required to maintain the current high prices.
[If monetary authorities called the sky green, it won't go green - at the end
of the day gold and silver will always act the same way as money]
Silver moving with Gold
The silver price continues to move with the price of gold,
not because they have the same demand and supply fundamentals or there is the
same quantity of the metal available, but because investors and users
perceive that the silver and gold prices reflect the state of the current
global monetary system. Such coordinated movements are saying that both
metals are not being priced themselves. They are both pricing the monetary
system and its prospects, as they have done for millennia. The huge growth of
the investment side of the two metals is confirmatory evidence of this.
Julian
D. W. Phillips
Gold/Silver Forecaster
– Global Watch
GoldForecaster.com
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