Many people think silver investing is pretty much like gold investing. But there are significant differences. And the drivers of the price of silver are much more complex. It doesn't seem fair, since the price of gold is over 60 times the price of silver. The relatively low price of silver has confounded analysts and cost silver investors for two decades.
I see four major elements of this perfect storm that is about to break in the realm of silver investing. First is the manipulation that has occurred in the silver market since the mid-1980's. In my last article I reported the decision of JP Morgan to close all of its proprietary commodities trading desks in early September. I am happy to report that as of September 24th, and despite prices of over $21 an ounce last week, there is no evidence of JP Morgan trying to slam the price back down--yet. Gold has not had such manipulation to muddy the waters.
A second element to the silver investing storm is industrial supply. Industrial demand for silver has grown steadily the past three decades. Silver has properties that no other metal has, making it a vital component in all types of electronic products, medical products, solar panels, and on, and on... Gold too, has industrial uses, but it is miniscule compared to the supply of gold and the uses for silver. As the rate of technological advance continues to accelerate, so does the industrial demand for silver - but not the supply.
The third element is low, inelastic supply. Analysts estimate that of all the gold known to have been mined in the last five centuries, well over 90% still exists. Gold doesn't get "used up," except for the very small quantity used in industrial applications. We see a much different scenario with silver. The same analysts estimate that of all the silver known to be mined in the last five centuries, only about 10% still exists. When silver is used in a cell phone, or to make a mirror, or photography - it's pretty much gone forever. Industrial demand for silver is greater than ever in the history of the world, and increasing. On the other hand, supply is low, and production is inelastic. By that I mean, there are only about two dozen silver mines in the world, and those mines produce only about 30% of the silver. The remaining 70% is mined as a by-product of other metals mining, the single biggest of which is copper. Silver production is virtually impossible to increase, despite growing demand. It is what it is.
The fourth element in the imminent silver investing storm is investor demand. Investor demand is the big driver of gold price, but has been an insignificant driver in the price of silver. The convergence of the three elements mentioned above, along with uncertain economic times, is going to change that. As the economic uncertainty persists, and fear of inflation and monetary malaise becomes more widespread, investor demand for gold continue to push the price up, which will put it out of reach for many new investors. Plus, the absolute dollar price will seem outrageous. Investors will turn to silver as the "poor man's gold." The manufacturing companies in many industries simply must have silver to build their products. They will pay any price, buy in advance, hoard-and drive the prices even higher.
I cannot say which of the four elements, or even if a single element, will be prevalent as the storm hits the coastline of the silver investing community. But at some point all four elements will be driving the price of silver in unison. It will be quite a storm.
Learn how to protect yourself against the current (and impending) economic disaster with silver investing. For more information: http://www.esilverinvesting.com
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