Understanding the silver market
The silver market is very small. The silver market may even be too small for most investors to grasp. With new areas of usage found for silver continuously, together with the historically ingrained demand for silver jewellery, the potential for buying silver as investment is overwhelming.
Silver production and demand
Annual silver mine production is estimated to be about 600-700 million troy ounces. About 70% of the produced silver is mined as a byproduct of other metals such as copper, zinc and lead.
Industrial usage for silver accounts for 45 % of the silver demand. Silver jewellery making accounts for 18 %. 100 million ounces of silver is expected to be used for solar panel production already in 2015 which makes the silver market very tight. Only slightly less than 100 million ounces of silver is available for the annual silver investment demand.
Since silver is extremely undervalued and is virtually on sale, many companies’ buy silver in large quantities to lock in the low price.
With an annual demand for silver at more than 800 million troy ounces, there’s a big annual deficit of about 200 million ounces. Some of the deficit is currently covered by recycling and sales of strategic deposits but it is unlikely that the total supply will be able to keep up with the demand at the current low price levels.
Given that silver is the element with the best electrical and thermal conductivity, it is an extremely important commodity for manufacturers of electronic goods. When the gap between supply and demand for silver grows even larger, industrial buyers and investors will scramble to buy silver. Since silver is only a small component in many technological applications and therefore only contributes to a small part of the cost for each application, industrial silver buyers are not very price sensitive. This may push up the price of silver in the future without any reduction in demand.
Since many applications use silver as a small component, the silver is consumed and can’t be recycled. With more silver demanded than what is mined, the current situation is unsustainable. Unless the silver price increases, there will be shortages with no physical silver available on the market.
Physical silver or paper silver?
Physical silver is no one’s liability. When you buy physical silver you own it without any counterparty risk. In uncertain economic times when financial institutions come under pressure, it is comforting to eliminate all middlemen between you and your assets.
In the so called silver spot and silver futures markets for commodities, large quantities of paper silver contracts are issued without any backing of the physical commodity. Since the paper price of silver sets the price also for the physical market, the price mechanism is not working properly. The price for physical silver is much lower than it would have been if the price of silver was set on the real physical silver market as a factor of demand and supply.
Many analysts believe that silver is one of the most suppressed commodities and there’s suggestions that the ratio of unbacked paper silver to real physical silver may be as high as 100 to 1 or higher.
For the physical silver market to balance, the price of silver has to adjust upwards. If the silver price doesn’t adjust, there will be widespread shortages of physical silver as we have already seen from time to time since 2008. When the price for physical silver starts to increase, buyers will scramble to buy any physical silver available which might in turn accentuate the demand even more. Remember that the silver market is very tiny and will not be able to sustain much of an increase in demand. It will thus be increasingly difficult for the issuers of paper silver contracts to deliver physical silver. One possible scenario is that the market and price for physical silver will decouple from the paper market enabling for an exponential increase in price for physical silver.
Some investors shun physical silver with the argument that it is bulky and inconvenient. Sure, buying silver paper contracts online might be more convenient, but if you’re really investing in silver for the upside potential in value, you would be better off buying physical silver free of any counterparty risks.
Physical silver is NOT a paper promise. To buy paper silver with your paper currency is like jumping out of the frying pan and into the fire!
By buying and owning physical silver, you will sleep well at night knowing that you own a real asset with a great upside potential in value.
Growing silver market in Asia
Asia is growing as a silver investment location. Countries such as Hong Kong and Singapore are precious metals trading hubs. Hong Kong and Singapore are jurisdictions with strong property rights and without links to the EU and the US. They make excellent locations to buy and store silver. When you buy silver in Singapore, it will be comforting to know that the Singaporean government supports the precious metals industry actively, that the crime level is among the lowest in the world, that Singapore has a strong tradition of protecting private property rights and that there’s no reporting requirements domestically or internationally for purchases of precious metals in Singapore.
If you want to own silver, you need to hold it yourself or through a reputable storage provider in a safe jurisdiction without any financial intermediaries. When the current monetary system breaks down, you will want your PHYSICAL silver safely stored and readily available when you need it.