Lear Capital: Silver Double Play Driving Physical Demand

2010_01_05_17_53_260001It makes no sense.  Silver is now trading below its reported production cost.  A recent survey of 8 top silver miners, shows an average all-in cost to produce an ounce of silver at $22 an ounce.  The scramble is on to own physical silver.

While Wall Street futures traders are wrecking havoc with the silver price, the demand for physical silver is going through the roof.  Investors, en masse, are now taking advantage.of a double-play in the silver market.

In times of economic uncertainty, rising debt and volatile markets, investors flee to both gold and silver as a safe haven to protect their wealth.  That’s the first part of the double play.

If, indeed the economy is in recovery, industrial demand for silver will skyrocket.  This is the second part of the double play.  Today, silver is used in the production of thousands of products.  Cell phones, computers, televisions, nearly all electronics today require silver to produce a quality product.

In medicine, silver is a strong bactericide and infection fighter. More practical uses are being discovered every day.  And, in solar energy, silver is the key ingredient of solar panels. Some say, in ten years, the need for solar silver alone could consume all of the annual silver production and more.

Supply is already under a great strain.  Three times this year, the U.S. Mint has run out of silver.  To the north, the Canadian mint has also experienced shortages and has had to ration sales of certain silver coins.

Did you know that above ground silver supply is now just one billion ounces?  At the beginning of time, the Earth’s supply of silver was 15 times greater than that of gold.  Now, the supply of above ground gold is 5 times greater than that of silver. Truly a sign that we are almost out.  One billion ounces today, is barely worth $20 billion dollars.  A small surge in physical demand and this supply could be wiped out.  What a great time to add physical silver to an IRA or other savings and retirement account.

Will this opportunity last?  One false move by Wall Street’s paper silver traders and the jig is up.  You see, trading contracts doesn’t necessarily require physical silver to even exist.  Contracts are more like bets on the future price of silver than they are bids to actually own it and take delivery.

I suspect one day though, someone will win big and demand delivery of the actual silver instead of a cash payoff of the bet.  Holy silver shortage Batman.  What would happen to the price of silver if it ever got out there’s barely any left compared to the sea of dollars that chase around every physical ounce?

If there has been a better time to own silver, it escapes me.  If the economy turns bad, Silver plays the safe haven role for investors.  If the economy recovers, industrial demand skyrockets.  There’s your double play.

What’s the downside?  Downside now is like jumping out of a basement window.  There’s just not that far to fall.

If you think there is an ounce of wisdom in this writing feel free to follow me @DaveTheGoldDr  If you think I am full of Bullion don’t bother.


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