These Forces Will Push Silver Over $100

Posted by Wealth Wire – Monday, November 19th, 2012

There are tremendous forces at work that will push silver over $100 an ounce. Very few precious metal analysts understand all the forces that are at work. Some analysts focus on specific areas such as the gold-silver ratio and technical analysis, while others write about future investment and industrial demand. And then of course, we have the more unorthodox analysts who delve into the ongoing manipulation of gold and silver — a realization shared by the author of this article. 

However, one of the most important aspects of silver that most analysts are completely unaware is the availability (or lack of thereof) of future silver mine supply. I am simply amazed how some analysts can forecast lower silver prices due to a so-called future supply glut that is supposedly coming in the next few years.

As I have mentioned before in a previous article, analysts today are so specialized they have no idea what is going on in another industry. It is highly doubtful that the metal analysts who make these long term silver supply forecasts really comprehend the details of the energy market and industry. The failure of these metal analysts to understand the complexity of the global liquid supply system will render their future forecasts completely inaccurate. This will be discussed at the latter part of the article as it is one of the longer term forces to impact silver. 

Silver Surplus-Deficit Explained Again

There still seems to be a misunderstanding about the so-called surplus-deficit of silver. Some analysts are pointing to the fact that increasing annual silver surpluses, without continued strong investment demand, can make the price of silver fall quite rapidly. I would like to repost this graph to show the surplus-deficit forces.

According to GFMS (now Thomas Reuters), there was a silver deficit until 2003. During this time of supposed deficits, the price of silver remained in the $4-$5 range. However, when the deficits disappeared and the surpluses began, the price of silver magically began to rise. The first year silver was no longer in a deficit (2004) it hit an average price of $6.67 an ounce. Then in 2005 it reached an average of $7.32, $11.54 in 2007, $13.38 in 2008, $14.98 in 2009 and so on and so forth.

The white line on the graph represents the average annual price of silver. As you can see the price is heading higher in parallel with the so-called rise of silver surpluses. These silver surpluses have been absorbed by institutional and retail investors. The notion that a structural deficit in the annual silver supply would push the market price of silver higher, failed to materialize prior to 2003 when actual deficits took place.

So, here we can see that the rise in the price of silver since 2004 has less to do with industrial demand and more a factor of increased silver investment.

Silver Investment Demand: Just Getting Started

Precious metal enthusiasts who are concerned about whether or not silver investment demand will remain strong in the future… shouldn’t be. From the data I am gathering, we are just beginning to see how large of a force silver investment demand will be in the upcoming years.

One of the more notable gauges of increased silver investment over the past decade, has been the growing demand of official government coins. In 2002, total supply of official government coins and medals were 31.6 million ounces. However, by 2011 this grew to a staggering 118.2 million ounces, a gain of 274% in just nine years.

Much more here with more charts: http://www.wealthwire.com/news/metals/4181?r=1