According to CPM Group’s 2011 Silver Yearbook, investment demand was the main driver behind silver price increases in the past year. Total demand from investors in capital markets reached 142 million ounces, the third-highest level since the start of data recordings. Meanwhile, industry demand has also increased significantly, contributing to rising output from silver producers. Nevertheless, there was a large gap between new supply from mines and demand in 2010, which amounted to a total of 319 million ounces worldwide.
Although silver producers have increased their output by 33% since 1999, the rising supply has not helped to meet the growing demand in silver markets. While 667 million ounces of silver were produced in the past year, global demand reached 986 million ounces – a stunning gap of 319 million ounces. Record-high demand from the investment community has proven the main driver for the continuing silver price rally in 2010, with the white metal soaring to a peak of $50 per ounce in the beginning of May this year. Investors are buying silver in order to hedge against continuing currency depreciation. Furthermore, investors' capital flight to the silver sector – comparable to the situation in the gold sector – seems to also to be driven by increasing fears of inflation.
While silver demand from the photography sector has steadily declined in recent years, this downturn in demand was more than offset by other industry sectors. Since 1999, silver consumption among end users in the electronics industry increased by 120%. This development is based on the ongoing miniaturisation of electronic components, to which silver significantly contributed due to its high versatility. Since the year 2000, in which the solar industry started its globally triumphal march, the use of silver has increased by 640% due to the production of solar panels as well as solar cells. Silver has also developed to one of the most respected antibacterial agent in the medical sector as it became an important part of research and new medical applications. While this sector represented nothing more than a small niche back in 2002, the sector's demand increased six-fold by 2010.
The prestigious Silver Institute recently announced that industrial silver demand will increase globally by approximately 36% to 666 million ounces in the next five years. The price should find a good support in the wake of this development as industrial end users are expected to likely take the chance of buying price dips on futures and options markets in correction phases. This way, they can stock up on inventories at lower price levels. In addition, silver investments only amounted to a negligible share of 0.007% of worldwide assets held by investors at the end of 2010 – despite its stunning price performance in the course of the last year.
Comparing these data with the year 1980, in which the silver price marked its record high of slightly more than $50 per ounce, the white metal is still providing investors with an enormous upward potential. Silver holdings accounted for 0.34% of worldwide assets held by investors in the record year 1980. This is theoretically providing silver with a further upward potential of 48 times from its current price level in order to reach the same figures recorded in 1980. Investors have to consider as well that today's global money supply is significantly higher than it was 30 years ago. Part of this liquidity will find its way into silver markets and prove to be the main driver for the future price development of silver.
I Would Prefer Silver To Gold Just On Relative Value
We're certainly going to have more crises coming out of Europe and America; the world is in trouble. The world has been spending staggering amounts of money that it doesn't have for a few decades now, and it's all coming home to roost.
I would prefer silver because it is still depressed on a historic basis. Silver is thirty percent below its all-time high. Gold is ten percent below its all time high. I would prefer one just on relative value, silver is probably better. I am not buying either today, but I am certainly not selling. If they go down, I will buy more.
The Silver Institute has released a detailed update on the silver investment market including mining stocks and a supply/demand update. Physical Investment update starts on Page 17.
The North American silver retail investment market is dominated by the United States, which has recently benefited from robust demand for (in particular) its 1oz Eagle bullion coin, 100oz bars and1oz rounds. However, in recent years there has also been a substantial gap between the level of Eagle coin production and the total consumed locally. This has been due to the substantial flow of coins into Europe, especially into the German speaking countries of Switzerland, Austria and, especially, Germany itself. In recent years there have been quite distinct trends in the United States in terms of the consumption of bars and coins, each of which are discussed below. Looking first at the coin market, the production of Eagles has surged in recent years, after remaining broadly stable during the 1999-2007 period, at an average of 9.4 Moz(292 t) per annum. However, in 2008 total off take leapt to a record high of 19.7 Moz (613 t), before rising to 34.7 Moz (1,079 t) in 2010. This year, a fresh peak will be set, in excess of 41 Moz (1,275 t),which will therefore achieve a similar gain to the 20% improvement posted in 2010. The US Mint’s impressive outturn has presented the Mint with a series of challenges, principally in terms of sourcing sufficient quantities of blanks (not only to produce bullion coins, but also to satisfy the range of commemorative coins released each year).
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