By: John Fisher
In the past year silver has essentially doubled. Currently it is on a price pull back. This is an excellent opportunity to buy silver at 30% off of its recent peak.
What fundamentals still exist? Essentially three:
1. Investment demand. Demand continues to increase. The U.S. mint is setting new records for Silver Eagle sales most months since the program began in 1986. The U.S. mint and other foreign mints have had to halt production at times due to lack of silver “blanks” to stamp. Other countries such as India, China and the EU are doubling and tripling their imports of silver.
Surprisingly, most Americans (approximately 97-98%) still don’t own any physical silver or gold . Even though demand has increased, it still hasn’t scratched the surface.
2. Supply. Total world-wide demand for silver annually is approximately about 895 million ounces. World-wide mine production is approximately 730 million ounces a year. Recycling accounts for the difference. Mining alone cannot meet the demand.
So what happens if industrial uses continue to rise? What happens if investment demand continues growing? What happens if we do get some type of currency collapse? What happens if Doug Casey is right and we get a true mania in gold and silver?
3. Industrial demand. Industrial use for silver has always been greater than that for gold, making it prone to price decreases in times of economic stagnation. The good news is that new industrial uses are being developed every day.
For instance, did you realize that silver use is increasing in the following applications: clothing, anti-bacterial, anti-microbial, hygiene, pharmaceuticals, food processing, electronics, water purification, wood products, nutrition and more?
So, although economies may slow, demand for silver is increasing – widening the mining / demand gap.
How high could silver go? Silver rose over 3,500% from 1970 to 1980. Using the same percentage today, silver could hit $160 an ounce using the current CPI calculation method. Using the CPI as it was calculated in 1980, the silver price could hit $420 per ounce.
Add to that a weak dollar, looming inflation, government printing presses, European sovereign debt default possibilities, geopolitical instability, rising interest rates, unemployment, real estate values… the list goes on and on. Silver could go even higher (as well as gold of course).
In all fairness, if the economy does crash, silver is likely to retreat further than gold because of its industrial use component.
All Things Considered – John’s Commentary
Silver tends to be more volatile than gold, largely because the market capitalization of silver is much, much smaller than gold – approximately one one-hundredth the size. That volatility, however, affords investors to buy on deep dips and probably make more money when they sell near the market top.
Action to take: Is now a good time to buy? I will cover that in detail in Part 2 on Thursday.
What to buy: Pre-1965 silver coin containing 90% silver is the best value at present. It comes loose in a bag in any amount. Otherwise, consider 100 oz. silver bars that sell for approximately 2% more.
Quote of the day: “Civilized countries generally adopt gold or silver or both as money.” – Alfred Marshall
