Silver gains more momentum

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Silver gains more momentum


By Laura Bobak
Investors buying physical bullion are boosting the cost of silver, a metals analyst told a commodities outlook session at the annual convention of the Prospectors and Developers Association of Canada (PDAC) in Toronto.

"That is the single most important factor pushing the price up," said Jeffrey Christian, CEO of CPM Group in New York. "They are not a residual actor; they are the single most active participants in the market."

Christian, noting the price of silver touched $19.80 in New York on Friday, predicted the price will rise above 1980's average price, which was $21 to $22 per ounces, although there were one-time spikes as high as $38 in New York and $48 in London. On an inflation adjusted basis, the London price would be about $96 today.

During the silver market cycle, in a deficit market for silver, silver is sold from inventories and investors become net sellers, Christian said. During a surplus silver market, investors become net buyers, and it's during these periods when silver prices spike.

"That is the single most important factor driving the silver price up," Christian said. "The increase in silver prices is really a function of an increase in demand in the investors' markets and the futures markets."

Exchange traded funds have become very influential in the market in the past 10 years, holding more than 220 million ounces this year, up from less than 20 million in 2002.

According to Christian, exchange traded funds have absorbed an enormous amount of silver, reducing liquidity in the physical silver market; it also played a major role in the 56% hike in annual silver prices in 2006.

"It's an industrial metal in short supply, and with tighter supplies (than gold)," Christian said.

There are a couple of billion ounces of bullion in world gold reserves, about half held by central banks; the other half held by investors, he said.

"Silver doesn't have those kinds of stocks lying around in bullion form any more, and that makes it a lot more interesting," Christian said.

In certain countries, gold and silver jewellery has been used as a form of savings by the public. But that is now shifting, Christian said.

While demand for silver jewellery dropped last year by 25% in India, that was offset by a 33% increase in investment demand. The metals are still in demand, however, in the form of bullion, medallions, coins.

"We think that the silver price will benefit from a combination of all the factors that are driving investors to hard assets, such as gold and silver," Christian said.

Silver will also benefit from pretty strong fundamentals: supply versus fabrication demand.

Although the demand for silver in photography is dropping with the increase in popularity of digital photography, here was a 15% increase in industrial demand for silver last year, Christian said, mostly for electronics and plating applications, many of which are electronics themselves.

"So a very strong fabrication demand is driving silver, not only in India, but elsewhere," he said, "and will probably continue to, even though the price has already risen sharply, on top of the surging investment demand."

 

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Bullish: Silver is a hot commodity these days


It is not just gold that is shining these days. In the bullion markets across the world, silver also continues to be extremely bullish.

Writing in Seeking Alpha, Peter Degraaf says silver is emerging as a hot commodity these days because it being utilized more and more in nanotechnology applications.

According to a recent report from NanoMarkets, a leading industry analyst firm based in California, the market for silver conductive inks is expected to rise from the current 176 million dollars per annum to 1.2 billion dollars during next 7 years. This is a seven-fold increase!

Degraaf said in addition, silver is the material of choice for RFID antennas, and the printing of RFID tags to be used on an ever-increasing number of items, including food packages. Key findings from the report can be found on their NanoMarkets website.

This is what Degraaf has to say further about Silver:

"When I first became interested in silver during the late 1950’s, the U.S. government had a stockpile of 2.5 billion ounces of silver. The amazing fact is that all of this silver has long since been sold. Most of it is gone forever! The majority of uses for silver does not allow for recovery, since only small portions are being used in each application. Computers, cell phones, T.V.’s, fridges, batteries, weapons, and now ink and RFID applications, each use a tiny amount. However, multiplied by large quantities, this ever increasing use is causing a constant drain on the remaining silver stocks.

I realize there are people who think that the large silver stockpile of the 1960’s still exists somewhere, but if you talk to some of the CEO’s of large coin dealerships who have been in business for a decade or more, they will tell you that investment demand for silver is a very recent factor. The vast majority of investors have been unaware of the potential that exists in silver investments, until recently. For some reason, most investors do not ‘board the train' until it is well underway."