There is no other metal on God’s earth that has so much potential to make its buyers millions more than Silver. And there is no other metal that has so consistently failed to deliver. However more recently, its proponents point to supply shortages and increased usage.
If I could fast forward three years into the future, and I saw that silver was $200 an ounce, it wouldn’t surprise me. There are five reasons why here at Silver Horn Mining we think Silver should be a strong part of your portfolio.
1. China’s supplies of silver are drying up
On the Shanghai futures exchanges, physical metal – rather than paper derivatives – is traded. As a result, many declare that the action there is a truer reflection of what is going on in the real world.
Since March 2013, silver inventory has fallen by more than 90%. At the high, there was 1,143 tonnes of stock. Last week, that had fallen to just 103 tonnes. In July and August of 2015 alone, there has been a 56% drop. That is some drawdown.
At this rate, China – a significant producer of silver, but also a consumer – will become a net buyer before the end of 2016, putting upward pressure on the price.
The exchange only came into being in 2012. Since then, there has been a correlation between the silver price and the exchange’s holdings. In other words, buying and selling on the exchange may be driving the price. As there is very little metal left to sell, selling pressure could dry up.
2. The time of year
A boring one, I know, but we are coming into what is traditionally a strong time of year for precious metals. After the winter months, when the price tends to stagnate and fall, May usually sees gains for silver.
In fact, with average gains of more than 12% over the last 20 years, May is the second best month of the year for silver. The best month is August, with average gains of 15%.
3. The ticking time bomb
Silver has the largest concentration of short positions of any commodity (in other words, some people have placed big bets on the price. To cover those short positions (in other words, buying back enough metal to close down the shorts) would require more days of production than any other commodity.
This is a time bomb that has been ticking for years – but there is a huge potential run on physical metal that is waiting to happen that could send the price a lot higher. Perhaps the Shanghai situation will spark it.
4. Silver’s increasing usage
Aside from its monetary and investment uses, silver is finding more and more practical, industrial applications. The more electrical, computer and mobile phone use grows (and nothing will stop that), the more silver consumption increases. New discoveries are being made all the time about its ability to combat infection, fungi, bacteria, bad smells even – so demand is increasing from medicine, biotech and clothing.
But perhaps the most exciting source of growing demand is solar power. Demand for silver on photovoltaic cells has gone from one million ounces in 2000 to 50 million ounces last year. That is about 5% of global supply. As solar power usage grows – and it will (think high oil prices, nuclear problems and all the rest of it) – silver demand will increase.
5. Global silver supply could fall
About 80% of silver’s billion-ounce annual demand comes from mining, the rest from scrap. Pure silver producers are struggling to make money at current prices, and investment in exploration has disappeared. Meanwhile, a great deal of silver is produced as a by-product of lead and zinc mining. This is another area where investment has disappeared. Shortages could lie ahead.
Silverhorn Mining Company is based at The World Trade Centre, Tower 4, 611 Flinders Street, Victoria, Melbourne, Australia, 3005. For any further information visit www.silverhornmining.com, email email@example.com or call us on +61 261 345 902.