A couple of weeks back, I said that I was starting to get excited about silver. It’s a major new theme that I’ve been exploring with my colleague David Stevenson over at our sister publication, The Fleet Street Letter.
I mentioned at the time that silver supply has had quite a bit of artificial stimulus over recent years. With central banks dumping the metal and ETF (exchange-traded fund) speculators bailing out of positions, it hasn’t been pretty for the world’s silver miners.
But things are changing. On the supply side, the central banks are practically out of silver to sell, so they can’t dump any more into the market. And the ETFs have probably now seen the top of silver outflows too. That means less and less silver is coming available.
What’s really interesting in this market is the fundamentals of demand. Practically every day new uses for silver emerge. It’s a fantastically versatile metal and it seems its industrial use knows no bounds.
And that combination of dwindling supply and rocketing demand is why I’m so keen on the precious metal’s prospects right now. Let me convince you.
The market for silver is changing – and growing fast
Historically, the main industrial use for silver was in photography. All those reels of camera film relied on silver compounds to capture images as they changed with exposure to light. But the need for film has been done away with by the digitisation of cameras and the invention of memory cards.
I guess that’s why many in the mining industry, and the central banks, were happy to dump their silver holdings over the last decade or so. They thought that the key use for silver was on the wane.
But a market for silver was growing in the electronics industry all the while.
The electrical and electronics industries now account for nearly half of industrial silver demand. Unlike photographical applications, which required quite a lot of silver, technological applications only use tiny amounts per application. But the sheer volume of applications is immense.
I’m sure you don’t need me to cite specific examples of how the electronics market is growing – and practically all electronic products have a bit of silver in them.
But it’s not just in electronic circuitry that silver has an impact. There’s also demand from battery manufacturers, who are always looking to improve the performance of lithium batteries in things like laptops and mobile phones.
And solar energy is another huge growth market. In just about all solar crystalline silicon photovoltaic panels, silver is a primary ingredient. In fact, over 100 million ounces of silver are projected for use in solar energy by next year.
But it’s not just electronics driving silver demand
Exciting as the growing electronic applications are, silver is also in demand in several different areas.
For instance, it’s got fantastic antibacterial properties. You’ve probably noticed the growing range of consumer products, like liquid soap, which make the most of silver’s antibacterial properties.
If not soap, there’s also a growing ranges of consumer goods incorporating silver on a ‘nano’ scale. We’re talking socks, towels and sheets that can ‘self-clean’… well, to a degree!
Given the limited amount of silver required, it’s even used in things like food packaging to keep products fresh.
Water purifiers also use silver to help stop algal and bacterial build up. With the rich Middle East increasingly demanding fresh water from foul, purifiers are in increasing demand. In a similar way, hospitals, pools and spas use silver-based solutions to limit the need for unpalatable chlorine-based products.
With waterborne disease affecting much of the developing world’s warmer climes, demand for silver-based solutions will continue to grow. And that’s on top of the use in things such as catalytic converters, where precious metals have a key role in dissipating noxious emissions too.
We can’t get enough of the stuff
With so many rapidly emerging and exciting uses for silver, you might expect the silver price to have exploded.
But no. As I mentioned last time, the fundamentals of silver supply have simply overwhelmed the market. That is, the artificial supply coming out of the banks has slowed, and the flight out of silver ETFs too!
And anyway, many of the new applications will take time to come through. Falling photographic use is still having a negative impact, as traditional X-ray and premium-end photography gradually give up the silver ghost.
But for the moment, silver investing is still very much a contrarian play. Negative fundamentals have smacked investor sentiment to the ground.
And to me, that sounds like a good time to buy.
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