Even GFMS says Silver Has a Shiny Future

Posted: May 8, 2008 in Your Silver Lining
Tags: , , ,

[Resource Investor] Investment Demand Could Be a Silver Lining
” A key development in silver’s changing fortunes, argues GFMS, has been the pronounced shift in investment behaviour in the silver market. … GFMS contends that investment has ‘punched above its weight’ in the determination of the silver price. “

ETF Silver Holdings

My 2-Bits: The report appears overall to be pretty bullish on silver (I find these guys to be usually quite bearish so this is big change IMO). The article includes the graph above showing increasing ETF holdings but neglects to point out that holdings continued to steadily mount even during the sharp price drop in March (not even a tiny dip–quite remarkable really). GFMS does point out that since 54% of silver is used industrially then if global economies start to tank there will then be an excess of supply leading to lower prices long term. It is worth noting two automatic counter-reactions to this possibility:

  • Shrinking Industrial Demand = Shrinking Silver Supply. More than two-thirds of U.S. and world resources of silver are in deposits from which silver is obtained as a byproduct from copper, lead, and zinc processing. (source) — ergo if future industrial demand drops so will future silver supply
  • Reduced Economic Prosperity = Increased Flight to Safety. Gold is effectively out of reach for most people in this regard (hence the old phrase: silver is the ‘poor man’s gold’). The report shows that investment demand is on the rise during a period of already increasing pessimistic economic sentiments. In 1900 by far the largest use of silver was for investment purposes (if one includes national treasuries using silver to back their currencies). Now the report shows it to be down to 31% (if one interprets jewelery and silverware to be be both investment and practical use of the investment). Therefore I think it is very likely that investment demand will continue to rise inversely to declining productivity metrics.
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