As readers know, I have mentioned silver and some silver picks previously. The meteoric rise of silver seems to rush upward relentlessly. It’s above $40 now and shows no sign of weakness.
Silver stocks (juniors especially) are showing impressive gains.
Silver had an astounding 78 percent increase in price in 2010. A rebound in total fabrication demand, led by the industrial sector, was significant, according to World Silver Survey 2011, released today by the Silver Institute.
Silver posted an average price of $20.19 in 2010, a level only surpassed in 1980. World investment rose by an impressive 40 percent last year to 279.3 Million oz, resulting in a net flow into silver of $5.6 billion.
Exchange traded funds (ETFs) took 582 Moz, representing an increase of 114.9 Moz over the total in 2009. The iShares Silver Trust accounted for almost 40 percent of the increase, and Sprott Silver Trust achievED impressive numbers.
Demand is increasing. That is why the price is increasing. Simple SUPPLY and DEMAND.
The Historic Relationship Between Silver and Gold
Silver has to reach about $90 in order to match the historic relationship between gold and silver. Somehow we doubt this relationship is still valid, because industrial uses for silver are increasing demand for that metal.
Uses of Gold and Silver
Gold is primarily an investment vehicle. It is used in some industrial processes, but the main buyers are financial concerns, Gold ETF’s. hoarders, and investors.
Silver on the other hand is less of an investment vehicle, although still regarded as important, but more of an industrial metal. New and varied uses for silver are more frequently appearing.
Production of Gold and Silver
The production of gold from mines around the world is not meeting demand, but at these price levels, new prospecting and new junior gold seeking companies are popping up everywhere. As the price rises, the worldwide search for gold will in due course moderate the demand.
The demand will continue to grow, but now deposits of 1 g/t or even less are becoming profitable. Sites abandoned over the years are now being brought into production.
Silver, is not meeting demand. When one mines silver, some of the silver is then consumed by industrial uses and virtually disappears forever. The only replacement is to mine more silver from the ground.
Gold on the other hand stays. Of all the gold mined in recorded history, most is still available. Granted it is a meager amount, but it is available.
Some Industrial Uses of Silver
These include manufacture of electrical contacts and the use of silver in the photo voltaic (PV) industry, both historical uses. In addition there are new uses of silver centering on silver’s antibacterial qualities, while other new uses tend to make use of its conductive properties, including solid state lighting and Radio Frequency Identification (RFID) tags.
The number of addition uses will continue to expand, resulting in greater demand for silver. In most cases, the actual silver cost component used is quite moderate in comparison to the other costs involved in these various processes. Therefore dramatic swings in the price of silver will have less of a dampening effect than say oil as a comparison.
GFMS just released their annual report. They are the world experts tracking uses, costs, availability, production, and so on. They noted that in 2010, cell phones used 13 million ounces of silver last year, while computers consumed 22 million ounces. Thick film PV consumed a whopping 47 million silver ounces in 2010, followed by automobiles which used 36 million ounces of silver.
Electrical and electronics demand for silver reached an all-time high of 242.9 million ounces last year. Silver conductive inks are used in the area of printed electronics, while silver is also used as coating material for optical data storage media, including DVDs. They note that the rise in solar power is arguably the most significant development for silver demand in recent years
There are numerous other uses, too many to describe herein, and the list is growing..
Silver Mines
Although silver mine production rose slightly in 2010, gains came from primary silver mines and as a by-product of lead/zinc mining activity, whereas silver volumes produced as a by-product of gold fell 4 percent last year.
All of this means that we have not yet seen the last of the rise in price of silver. It has some distance to travel still.
So we repeat our previous comments. Junior silver minors are a good place to invest at this point in the economic cycle.
