Expect Higher Silver Prices From Soaring Investment Demand
Diane Alter: For the past few weeks, silver prices have been trading sideways. Kitco notes this tight trading range “could be “basing’ action that can put in market lows and occurs just before an uptrend begins.”
For those investing in silver, that’s great news.
And if you don’t think silver prices will go higher this year, here are three charts showing otherwise.
Higher Silver Prices and Soaring Investment Demand
Recent and ongoing events like sequestration, central bank easing, devalued currencies, and the Cyprus bailout have increased investor demand for metals, especially silver.
While 2012 sales weren’t as high as 2011, buying picked up in earnest in the final months of the year as investors raced to protect their nest eggs amid fears of a U.S. recession. As the pace picked up, the Mint ran out of silver eagles in December 2012, forcing it to announce there would no more coins until 2013.
In fact, in 2012 the U.S. Mint’s silver coins sales sold 33.7 million ounces of silver – more than the 33.5 million ounces produced from U.S. mining operations, according to the U.S. Geological Society.
Sales of the popular 2013 American Eagle silver bullion coins that went on sale to the public on Jan. 7 sold out by Jan. 15. Thanks to surging demand, sales exceeded 6 million ounces in a little over two weeks.
Source: U.S. Mint
As a result, the Mint was forced to suspend sales after it ran out of stock. When sales resumed, the buying was unprecedented.
January 2013 sales, at 7.1 million ounces, shattered the previous record set in January 2012 of 6.1 million ounces. The increase was an impressive 16.39% year-over-year.
The majority of sales came in the form of a box of 500 one-ounce silver coins the mint offers. This suggests investors are not simply stockpiling the coins as a collectible, they want “insurance” against a market crash or economic turmoil.
And it’s not just the United States — bullion dealers the world over report robust silver demand.
Chinese investors in particular have taken a shine to silver as an alternative investment as savers seek to preserve wealth amid a string of slowing fiscal quarters.
“Chinese investors want hard assets such as silver, especially when it’s cheaper than gold and requires less funding,” Beijing Antaike analyst Shi Heqing told Bloomberg News last year. “Many producers and investors have hoarded the precious metal in the form of ingots or unwrought silver.”
Higher Silver Prices and Industrial Demand
For those who slept through chemistry class, the basic scientific properties of silver make it an attractive candidate for use in appliances, computer chips, automobile parts, and medical devices.
As the highest electrical and thermal conductor of all metals, silver is playing a major role in the explosive mobile device market (smartphones and tablets).
Global industrial consumers typically don’t hold large reserves of silver thanks to just-in-time supply and production practices. That means a huge rush in orders could trigger a silver industrial supply shortage.
For example, earlier this year rumors swirled that Apple Inc.’s (Nasdaq: AAPL) iMac “production problems” were actually tied to a silver shortage. Apple’s iMac and iPad screens use more silver than the older models.
A possible recovery in the solar industry in China is also expected to boost silver’s demand.
Since 2000, the adoption of solar panel technology has meant a 50% annual increase in silver usage each year, going from 1 million ounces in 2002 to 60 million ounces last year, representing nearly 11% of all industrial demand.
The Chinese government has targeted 10 gigawatts of solar power installation in 2013 and 21 gigawatts of solar power installation by 2015. That compares to an installation on 2.6 gigawatts on 2011.
Higher Silver Prices and the Gold/Silver Ratio
A notable shift in many Asian and Middle Eastern markets has been from gold to silver due to the white metal’s relative cheap price.
That’s because the gold/silver ratio is about 54:1 – compared to 15:1, last seen in 1980.
Money Morning Global Resources Specialist Peter Krauth expects that ratio to move closer to 20:1 on a long-term basis. Expect silver will soar higher as it gets closer to gold’s $1,600 per ounce price.
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