DEEL 1 : Reasons To Own Silver
1. With gold rapidly re-establishing itself in its true historic role as money, silver is once again coming to the fore as "poor man's gold"
As investment demand for gold inexorably rises due to the relentless debasement of all fiat paper currency, its price will rise to levels that will make it the private preserve of central bankers, sovereign wealth funds, large institutions and wealthy individuals. As a result of this phenomenon, the general public will increasingly switch its focus to silver as a refuge from paper money excesses and the impact on the silver price will be dramatic.
2. Unlike gold, silver has many industrial and medical applications which absorb a significant proportion of both new mine supply and recovered scrap
Investors seeking to position themselves in physical silver will be in direct competition with the traditional consumers and this development alone will have a salutary impact on silver prices.
3. Silver is a remarkably small market to begin with and a heavy inflow of new capital into the sector will consequently have an outsized impact on price
Silver's overall market size is miniscule with annual total supply from all sources estimated to be little more than one billion ounces. When compared to the gold market, which is small in its own right, annual availability of silver from all sources has a dollar value of roughly 15% of that of gold. In addition, some 70% of silver supply goes to its traditional demand sources (industrial, medical, jewelry) while the vast proportion of gold is available for investment demand.
4. The inventories of above-ground silver have shrunk alarmingly over the past fifty years
Above-ground silver inventories were estimated to be as high as ten billion ounces at the end of the 1950's with the vast proportion being held in the U.S and China. In the succeeding fifty years, nearly 90% of this stockpile has disappeared, attesting to silver's chronic supply-demand imbalance. To put it in context, the roughly one billion ounces in inventory today is worth some U.S $35 billion,
a figure which represents little more than one week of U.S federal debt issuance, a significant proportion of which is being monetized by the Federal Reserve.
5. Silver's industrial and medical applications are growing rapidly
Complicating investor's desires to own more silver is the rapid growth in silver's non-investment sources of demand. Silver may be the most versatile of all metals
and among its many attributes are:
a. It is one of the best conductors of electricity.
b. It is the second best reflector of light behind rhodium, but at a fraction of the cost.
c. It is a biocide and has proven very effective in killing germs.
Thus, not surprisingly, its demand is exploding in such diverse fields as modern electronics, solar panels and numerous medical applications. In many of its varied uses, it is difficult to find a cost-effective substitute and because its usage in many instances constitutes a small proportion
of the total cost of the product, its demand is relatively price inelastic.
It is interesting to note that photographic demand used to constitute nearly 33% of non-investment demand but that has virtually disappeared due to the wide adoption of digital photography and has been easily replaced by the new applications. In addition, there was a high recycling aspect to the photographic use which is largely absent in today's dynamic new uses.
6. Increased mine supply will not be a solution to accommodate rising demand
A very significant proportion of mine supply is a by-product of base metal production as there are remarkably few pure silver mines in the world. Given the world's precarious economic and financial situation, there is a high probability of economic dislocation which would severely cripple base metal demand and may lead to mine closures. That would have a significant impact on silver supply. In addition, Peru and Mexico are the world's leading silver producers, accounting for over one-third of world production and geopolitical conditions are deteriorating alarmingly in both countries, most particularly Peru.
7. There has been a significant change in the large and important Chinese market
For many years, China was known to have large above-ground inventories in conjunction with considerable mine production (by a large margin, it is the world's third largest producer behind Mexico and Peru). Accordingly, it was a substantial exporter of silver and was instrumental in contributing to the uneconomically low silver prices in past years. However, recently, their exports have slowed to a trickle and Chinese investment demand for silver has accelerated to such an extent that China has actually imported silver. Given the country's vast population, its growing wealth and its well-advertised dissatisfaction with the status of the U.S. dollar of which it is the major holder, Chinese interest in silver can't be underestimated.
ZIE OOK DEEL 2