The New GOLD - SILVER

In three years the price of silver will double and in 5 years silver will overtake gold.

Owing to my poor writing skills I might not be able to elucidate here the logic on the basis of which I am siding with silver and stating that it will become a more precious metal than gold. Rest assured, there is sound logic and undeniable facts in support of the same. 

Among the list of rationale that I am using to support silver, one is that over a period of years I have been able to spot rallies quite accurately and I see a huge rally marching up for silver. The truth is that this is not just a hunch. I have a lot of facts inside my head and a intuitive feeling developed by my subconscious mind on the basis of those facts that silver is set to touch an all time high.Well, i know that a lot of readers who just read this would go 'hmph'. Not good enough a reason for you to raise the bar for silver. 

Okay, accepted. Read further for more radical reasons. 

Like any other commodity, silver's price is also determined by the push and pull of demand and supply. Simple economics says if 'SUPPLY' is constant then, higher the ‘DEMAND’ higher the price and vice-versa i.e. ‘DEMAND’ is constant and 'SUPPLY' is more the prices trend downwards. Now let’s understand the forces of ‘DEMAND’ and ‘SUPPLY’ for silver and find out which creates a bigger impact. If ‘SUPPLY’ wins then price will trend down in the medium to long term and if ‘DEMAND’ wins then prices will rise. 

For the Inquisitive Investor - I am not proposing anything new here, all I am trying to do is arranging the facts available through the world wide web (silverinstitute.org) and trying to come to a conclusion on the movement of silver prices in the medium to long term. I have personally bought silver at Rs 30,000/Kg. I am not trying to induce a buy but just want to tom-tom about the fact that I predicted a rally. (some would say I am doing it to prove to my wife down the years that buying silver now was a better idea than a new refrigerator like she wanted)

Sources of ‘SUPPLY’

Some say Silver supplies are steadily shrinking. In 1900, global silver stocks trotted up to 12bn ounces, according to commodities researcher CPM Group. But by 1990, that figure had dropped to around 2.2 billion ounces. And today, 'above ground' refined silver inventories amount to less than one billion ounces. Indeed, for most of the last 20 years industrial demand alone has outstripped mined supply. 

Silver production was flat this year and is expected to be flat again next year. Surprisingly, the amount of mined silver has been less than its demand every single year for the last 15 years. This hasn't resulted in significantly higher prices yet because the world has been able to fill the gap from inventories and official government stockpiles. The decline in refined silver stocks, from around 2.2 billion ounces in 1990 to around 300 million ounces today means that silver stocks are near an all time low.

Silver mine production rose by 4 percent to 709.6 Moz in 2009. Gains came both from primary silver mines and as a by-product of gold mining. Regionally, the strongest growth stemmed from Latin America, where silver output increased by 8 percent, with the most visible gains recorded in Argentina and Bolivia. Peru was the world’s largest silver producing country in 2009, followed by Mexico, China, Australia and Bolivia. All of these countries saw increases last year except for Australia, where output from the lead/zinc sector declined markedly. Global primary silver supply recorded a 7 percent increase to account for 30 percent of total mine production in 2009.

Net silver supply from above-ground stocks dropped by 86 percent to 20.2 Moz in 2009, driven mostly by the surge in net investment, higher de-hedging, lower government sales and a drop in scrap supply. With respect to scrap supply, 2009 saw a 6 percent decrease over 2008’s figure to a 13-year low of 165.7 Moz. This represented the third consecutive year of losses in the scrap category.

Government stocks of silver are estimated to have fallen by 13.7 Moz over the course of last year, to reach their lowest levels in more than a decade. Russia again accounted for the bulk of government sales, with China and India essentially absent from the market in 2009. Regarding China, GFMS states that after years of heavy sales, its silver stocks have been reduced significantly.

The supply of silver is inelastic. Silver production will not ramp up significantly if the silver price goes up. Supply didn't increase in the 1970’s when silver rose 35 fold in price – from $1.40/oz in 1971 to a high of nearly $50/oz in 1980. 

Importantly, silver is a byproduct metal and some 80% of mined silver is a byproduct of base metals. Higher prices for silver will not cause copper, nickel, zinc, lead or other base metal miners to increase their production. 

There are only a handful of pure silver mines remaining. This inflexible supply means that we cannot expect significant mine supply to depress the price after silver rises in price.

Sources of ‘DEMAND’

Industrial demand for silver has consistently increased; Silver has a number of unique properties including its strength, excellent malleability and ductility, its unparalleled electrical and thermal conductivity, its sensitivity to high reflectance of light and the ability to endure extreme temperature ranges. 

Silver has the highest electrical conductivity of all metals, even higher than copper. It was used in the electromagnets used for enriching uranium during World War II (mainly because of the wartime shortage of copper). Silver has the highest thermal conductivity and optical reflectivity of all metals. Silver’s unique properties restrict its substitution in most applications.

Industrial demand includes electrical, medical, photography, Jewellery and silverware. Together, these categories represent more than 95 percent of annual silver consumption. In 2005, 409.3 million ounces of silver were used for industrial applications, while over 164.8 million ounces of silver were committed to the photographic sector, and 249.6 million ounces were consumed in the jewellery and silverware markets.

Silver is used in film, mirrors, batteries, medical devices, electrical appliances such as fridges, toasters, washing machines and uses have expanded to include cell phones, flat-screen televisions, Air purifiers, water purifier’s cosmetics and many other modern high tech devices including RFID tags.

Increasing industrial demand for silver is forecast due to strong economic growth in China, India, Vietnam, Russia, Brazil and other emerging economies in AFRICA & ASIA. Growing middle classes are now demanding the quality of life and standard of living enjoyed by many in the West and thus the demand for silver will increase.

Silver is known as the healthy metal and has many and increasing medical applications. While silver's importance as a bactericide has been documented only since the late 1800s, its use in purification has been known throughout the ages. 'Born with a silver spoon in his mouth' is also a reference to health as well as wealth. In the early 18th century, babies who were fed with silver spoons were healthier than those fed with spoons made from other metals, and silver pacifiers found wide use in America because of their beneficial health effects.

Today silver is used in many health-care products. Specifically, the ‘silver bullet’ is used by nearly every hospital in the world to prevent bacterial infections in burn victims and allow the body to restore naturally the burnt tissue. Increasingly, wound dressings and other wound care products incorporate a layer of fabric containing silver for prevention of secondary infections. Surgical gowns and draperies also include silver to prevent microbial transmission. Other medical products containing silver are catheters and stethoscope diaphragms.

In a world that is showing increasing concern about the spread of diseases and pandemics such as bird flu, silver is being increasingly tapped for its 'biocidal' properties. Research is going on the use of silver and its compounds for therapeutic uses and on its potential use as a disinfectant in hospitals and other medical facilities. 

The great nano technology has been put to great use by silver; silver particles are used in lining air filters and water purifiers because of their microbial growth prevention properties. Even Deodorants and cosmetics now contain SILVER particles.   

The rate of growth in silver has outpaced that of gold in real terms. The best pointer about silver is when the economy revives the demand for silver will rise even more; because 50% of silver demand comes from industrial houses. A recovery in the world markets could significantly give a big booster to silver demand where by demand could exceed previous highs of 900m/oz to 1200m/oz. This increase in demand and stable output will lead the prices to soar to the tune of almost $34/oz. 

On the investment side, gold has benefited from a significant participation from institutional players like hedge funds, pension and retirement funds, insurance companies, and sovereign wealth funds. So far, silver has not enjoyed equal recognition from these large players -- but this is likely to change as fund managers recognize silver's relative value and simply wish to diversify their precious metals exposure. This will also lead to more ETF’s hitting the markets which will increase silver demand further by another 200m/oz. The days are numbered when silver would be called the poor man’s Gold.

The Above mentioned reasons are the fundamental factors that can stimulate the price of SILVER and take it to new highs. I have also something else to add...


As explained earlier commodity prices should reflect market forces of Demand and Supply. but this is not the case most of the time, as we don't operate in absolutely free markets and honest players. Prices of commodity at times can behave irrationally and the duration of irrationality like our well know 'KEYNES' have foretold be irrational longer than you can stay solvent. 


Some participants in the market still feel the price of silver is being manipulated and kept at unreasonably low price due to excessive Short Positions. The unreasonably low price has depleted Silver holdings in the world and industrial consumption of silver cannot be retrieved that silver is lost forever. already commissions have been formed to investigate into manipulation of silver prices. The parties involved are Financial Institutions like JP Morgan, US Federal Reserve, HSBC. If the commission states that the said institutions are not allowed to hold such huge short positions of silver and they need to cover it... then there could be an explosion in silver price. I know the dollar could crack with the rise in Silver prices but i am no God to think of all the pros and cons.