May 11, 2012
Topics: Silver
Silver became a hot topic during the aggressive run up in May of 2010, but it has been in consolidation mode ever since. Many investors who expected silver to make new highs by now have been disappointed.
The most recent data from the silver institute shows that demand for silver is still strong, but slightly lower than in 2010. Investment demand was flat for the year and industrial demand and demand for jewelry was down.
Silver has been in tight supply, but because half of all demand comes from industrial applications it is very sensitive to the business cycle and economic growth. Investment demand has been rising but it will not be enough to offset the decline in demand that comes with a recession. The chart below shows the demand for silver from 2002 to 2011.
The next chart shows supply of silver. The vast majority of supply still comes from mine production but as the price rise we will see more scrap silver coming to the market. Scrap silver is much more expensive to recycle than gold. Many applications that use silver are difficult and expensive to recycle. The vast majority of silver in electronics such as phones, televisions, computers and household appliances end up in landfills without ever being recycled, while other applications such as solar panels are in service for decades before they can be recycled. As such, most of all new silver must come from mine production. The chart below shows the supply for silver from 2002 to 2011.
The Physical market was very strong last year, but it seems to have slow down a bit this year. Sales of American silver eagles are slightly down from last year. The chart shows sales of American silver eagles this year versus last year.
Physical sales are slightly down from last year and industrial demand also seems to be flat. The physical silver market may still be in tight supply but unless we see a push from investors we may not see higher prices this year. The market is still in consolidation mode and before we see higher prices we need a boost in economic growth or a rise in inflation.
Silver may still be the investment of the decade as Eric Sprott proclaimed but we seem to have entered a slow period. The summer season has historically been slow for both gold and silver and this may be a time to look for bargains.
To learn about trends and spot the next investment opportunity read the Casey Report from Casey Research. It's a monthly investment news letter that breakdown economic trends in a way that is easy to understand. They make recommendations based on economic reality and their track record is several times better than the market or any mutual fund for that matter.
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