Of late, more is being said about the potential of silver prices to rocket skyward. One reason – Demand! It’s said to be rising as silver has a myriad of industrial uses. You will be surprised at some of those uses but once you understand them it does become quite easy to see why silver demand is exploding. Here’s just a few of those specialty industrial uses you may not be familiar with.
- RFID tags for stock control and ID cards are "taking over from bar codes";
- Solar panels – forecast to grow by 20-40 times in 10 years;
- Wood preservatives to replace arsenic;
- Wound care & other medical use, food hygiene, and anti-odor textiles – because silver, a biocide, inhibits bacteria.
If demand is the Ying then what’s the Yang in this equation? Supply of course. According to Jeff Clark, Senior Editor of Casey’s Gold and Resource Report, 1Q sales by the U.S. Mint (of American Eagle Silver Coins) hit record highs with 9,023,500 coins sold, the highest volume since the coin was introduced in 1986. According to Clark, that kind of volume is creating a potentially explosive situation as U.S. Mint sales are now approaching parity with annual domestic production of 40 million ounces.
According to Clark, "This is especially explosive when you consider that roughly 40% of all silver is used for industrial applications, 30% for jewelry, 20% for photography and other uses, and only 5% or so for coins and medals." If we develop a dependency on foreign silver as we have on foreign oil, watch out! Prices could really take off.
So now we have the Ying, we have the Yang let’s throw in the Bang! Spot silver prices today, just like spot gold prices, are determined by the price futures contracts trade at on the COMEX. This is referred to as paper silver. Millions of ounces of silver are traded on the Comex every month. It is presumed that there is balance. If there is a contract to buy 1000 ounces in 2 months, there is 1000 ounces that someone is willing to sell under contract terms agreed to.
This is where it gets a little interesting. Some say there is really only one ounce out of a hundred in physical existence. So what happens when the person buying wants to take delivery of a thousand ounces when there is only ten to deliver? Yup! That’s the BANG! This is what some claim the situation to be right now on the COMEX. So, I looked into it a little and found a report put out by the National Inflation Association.
According to this report, "We don’t believe there is only 1 oz of physical silver for every 100 ozs. represented on paper. Most likely, there is 1 to 3 times more paper silver than physical silver. This is still a major problem that will ultimately result in a major silver shortage and short squeeze, once a large number of COMEX holders begin to demand physical delivery of silver."
Where could the silver price go? Some say to match it’s inflation adjusted high, silver would have to trade above $130 an ounce. So, next time you examine your Precious Metals portfolio or your Gold IRA, consider adding a little silver to the stash. Silver demand is rising right along with gold demand. Both silver and gold have a history of being real money and both silver and gold are recognized as a hedge against inflation. If the COMEX has to take one in the Silver Shorts, because one large transaction exposes lack of physical inventory. Bang!
But don’t take my word for it. Recall recent reports where the U.S. Mint has announced shortages of both American Eagle Silver Coins as well as American Eagle Gold Coins.