In recent times, we’ve been looking very seriously at silver over at our sister publication, the Fleet Street Letter. In our opinion, the metal is in something of a sweet spot right now.
The whole silver and mining sector is deeply out of fashion (usually a good sign), yet we think silver demand is set to rocket. And this, at a time when supply is plummeting.
Together with my colleague, David Stevenson at the Fleet Street Letter, we’ve come up with what you could call a silver plan.
Today, I’d like to give you a little flavour of why we’re getting excited about the metal.
Artificial supply has suffocated the silver market
Like gold, silver benefited from a decent millennium bull market. The price soared from around $5 an ounce, peaking at just under $50 in 2011. Also like gold, the last couple of years have not been kind, with the price dropping back to around the $20 mark.
Now, silver is a bit of a strange beast – it’s widely considered a precious metal, and is therefore hoarded both in jewellery and bullion form. However, what’s really interesting is its ever-growing industrial use. And though it’s classified as a precious metal, its price isn’t exactly right up there with the others. With gold, platinum, palladium and rhodium trading somewhere between $800 and $1,400 an ounce, silver’s obviously the poorer relation.
In terms of monetary reserves, if the central banks consider gold a ‘barbarous old relic’, then you can just imagine what they think about silver. And that’s exactly why they’ve been selling reserves over the years. Despite a gathering bull run, the price has been subdued by a constant supply coming out of central vaults.
However, the recent World Silver Survey (produced by Thomson Reuters) suggests that this selling tapered off just as the silver market peaked (perhaps that’s why the market peaked?). In typical form, governments sold vast holdings of silver all the time the price traded near its lows.
But just as the governments started to lay off, suddenly a new seller arrived on the market. During the millennium bull run, a considerable amount of speculative interest developed. So much so, that exchange-traded funds (ETFs) were set up to facilitate trade and absorb demand.
And as the market turned down in 2011, many of the ETF holders turned sellers. Again, a massive supply was simply dumped on the market.
So, over recent years, both central governments and speculators have added considerable silver supply to the markets. After all, why hold silver bullion when you can hold dollars?
But where did the silver go? The simple answer: China.
And the key point is that this silver is never coming back – at least not in bullion form. It’s no longer used as a precious metal and store of value. Instead this stuff is a key ingredient for modern electronics.
With the considerable artificial supply now drained and growing industrial demand for the stuff, it’s now down to the silver miners to increase production.
But, as we discuss in detail in FSL, the industry is hardly set up to do any such thing. That means the silver price could be poised for another assault on its highs of yesteryear.
I’m so excited by this one that David Stevenson and I are devoting all of this month’s issue of The Fleet Street Letter to figuring out the best ways to play the approaching price rise. It comes out today. So if you’ve been bitten by the silver bug, I’d highly recommend checking it out.
The Fleet Street Letter, in case you don’t know, is my subscription newsletter. It analyses at the biggest investment stories in the world in detail, with a portfolio of stocks to help the readers profit from them. If you’d like to try it (with a full money-back guarantee for three months), click here.
As for silver, the big question is: who benefits most? Well, it’s likely to be the silver miners themselves. And that’s why we’re keen. Better still; most of them are on their knees right now. But, as always, the darkest hour is just before the dawn.
Both here at The Right Side, and Fleet Street Letter, we’ll be keeping a keen lookout on silver.
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