4 Catalysts Driving Silver Prices Higher

August 19, 2013 4:11pm NYSE:GLD NYSE:PSLV

silver barsTony Daltorio: After slipping nearly 40% this year by June, silver prices today have rebounded, and now trade near $23 an ounce. Silver ended the week up 14%.


This puts the precious metal at a level not seen since May.

There are several reasons for this move up in silver prices – reasons that will carry silver prices to $40 an ounce – and then $60 an ounce – by 2014.

With a lot of “crash talk” making the rounds – like the Hindenburg Omen – now’s a good time to be taking gains in the white metal.

Here are four reasons today’s silver price is the start of more double-digit weekly gains in 2013…

Silver Prices Today: Four Reasons for the Climb

Silver Price Catalyst #1: Short Covering

Many speculative hedge funds had gone short silver, expecting more downside to the sharp selloff that occurred in the precious metals space. The hedge fund community had the lowest amount of net-long positions in silver in about 10 years.

Some of those bets have now been covered, with the funds buying back silver futures contracts. But there may be more short covering to go.

Walter de Wet, head of commodities research at Standard Bank, told the Financial Times that U.S. Commodity Futures Trading Commission data showed the speculative market “has been building a large short position which is yet to unwind.”

As silver moves higher, shorts will rush to cover, and give prices an even bigger boost.

Silver Price Catalyst #2: Physical Demand for Coins

Another factor at work here is similar to what’s been happening in the gold market: strong physical demand for silver.

That can be seen in the coin market.

The latest numbers from the U.S. Mint show that there were 31 million ounces of silver coins sold so far this year. In 2012, there were only 33.7 million ounces of silver coins sold all year.

Other mints around the world are showing a similar pattern.

Take the Royal Canadian Mint, for example.

It said this week that demand for both gold and silver products remained “very strong.” The Mint added that people seemed to be buying the coins on every dip in precious metals prices.

Sales of silver coins were particularly strong.

Chris Carkner, managing director of sales for bullion, refinery and exchange-traded products at the Royal Canadian Mint, told Kitco “Year-to-date, after the second quarter, we’ve had record volume for silver Maple Leafs, the greatest we’ve had in the over 25 years that we’ve produced them.”

Silver Price Catalyst #3: This Country’s Exploding Investor Interest

North American investors aren’t alone in their attraction for physical silver.

So is another region of the globe we’ve touched on before, one that’s key to the future of silver prices…

I’m talking about India.

The current Indian government and its central bank have placed all the blame for a flagging economy and plunging currency squarely on the country’s investors’ affinity for gold.

The government has placed restrictions and tariffs on the importation of gold into the country.

That has had the effect of making the smuggling of gold more profitable than the smuggling of drugs. But more importantly to investors, it has lit a fire under Indians’ desire for silver.

Silver imports into India in the second quarter of 2013 surged an astonishing 259% to 857 metric tons. The month of July alone saw imports of 275 metric tons, the second-highest monthly import number in the past five years.

To put the April-July import figures for silver into perspective, 857 tons is the equivalent of roughly a third of the world’s monthly production of silver.

It looks as though ordinary Indian citizens are simply substituting silver for gold until their government ends its ‘war’ on gold.

All the silver purchases are also a good way for investors in India to insulate themselves long-term against a plunging currency. The Indian rupee has tumbled to a record low against the U.S. dollar, down 26.5% over the past two years.

Bottom line: the global trend toward buying physical silver continues.

Silver Price Catalyst #4: Solar

This final one came straight from Money Morning Global Resources Specialist Peter Krauth.

I’ll let him explain:

“One rapidly growing source of silver demand is in photovoltaic solar panels. Since 2000, silver consumption from this sector has risen by 50% annually. In 2002 silver usage for solar panels stood at one million ounces, but grew to 60 million ounces by 2011. But now a number of nations are make a strong push for solar-generated electricity. Japan last year announced it would pay utilities three times the rate for electricity generated by solar power. Now China has raised solar-generating capacity targets by 67% from previous levels, from a 21-gigawatt target in 2015 to a massive 35 gigawatts. It’s now projected that demand from Japan and China alone will soak up nearly 11% of world mine supply.”

Money MorningWritten By Tony Daltorio From Money Morning

Your Guide to Financial Freedom. We’re in the midst of the greatest investing boom in almost 60 years. And rest assured – this boom is not about to end anytime soon. You see, the “flattening of the world” continues to spawn new markets worth trillions of dollars; new customers that measure in the billions; an insatiable global demand for basic resources that’s growing exponentially; and a technological revolution even in the most distant markets on the planet. And Money Morning is here to help investors profit handsomely on this seismic shift in the global economy. In fact, we believe this is where the only real fortunes will be made in the months and years to come.


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