After a strong year, silver started the first trading week of the new year at $31/oz., up over 100% since our Februarybuy alert. Silver prices have not only reached their highest levels in 30 years, but have seen their biggest annual gains in as much time.
Although a short term correction is possible, we expect silver prices to eventually climb considerably higher by this time next year for all of the following reasons:
10. Silver is both a precious and industrial metal. Unlike gold, which has little industrial demand, silver has myriad industrial uses, but has always and continues to be used to preserve wealth.
9. Silver conducts heat and electricity, reflects light better than any other metal. As such, silver is a component in practically every electronic device we use. As wealth continues to expand in BRIC countries, their appetites for electronics will continue to grow, placing further strains on the already tight silver market.
8. Silver:gold ratio remains far too high. Throughout history silver and gold have maintained a 10-15 ratio. Even in 1980, the height of the last commodities bull market, the ratio was roughly 17. Presently at 47, the high ratio leads one to assume silver prices will likely continue to outperform gold.
7. Global silver supply concerns deepen. Investment bank and other industry analysts estimate total 2010 global silver supply (production and scrap supply) to nearly match combined industrial and investment demand (e.g. see BNP Paribas and BMO analysts’ reports). Gold, on the other hand, is widely expected to see surplus supply.
6. Global silver reserves are at their lowest levels. The Silver Institute estimates that total silver inventories dropped over 85% in 2009 to 20.6 M oz and that after significant sales, total government reserves are presently half of 2008 totals.
5. Silver is cheap. Potential precious metals investors who perceive gold as expensive at $1,400/oz. are likely to consider purchasing silver at just $31/oz.
4. India increases silver imports. The world’s largest silver consumer, India will have likely imported at least 20% more silver than in 2009, according to the Bombay Bullion Association, which also expects the trend to continue well into 2011.
3. China cuts silver exports. China shocked investors when it reported a 60% decline in exports during the first eight months of this year, according to customs data. China’s total silver production figures were down nearly 2% over the same period.
2. Peru’s silver output falls. Peru, the world’s largest silver producer, by far, recorded a 4.4% decline in exports during the first 7 months of 2010. Monthly silver output fell between 7 and 12% from August to November 2010, leading us to doubt GFMS’ expectation that global silver output will be substantially higher than last year.
1. Chinese investment demand soars. China’s silver imports have thus far jumped 15% in 2010, making China a net silver importer for the first year in recent decades. However, silver trading on the Shanghai Metal Exchange increased an astounding 290% during the first 3 quarters of the year.
No comments:
Post a Comment