Silver: The Everyday Gold


"Regardless of the rumors surrounding silver, one thing is for certain - unlike gold, physical amounts of silver are limited."

Precious metals and commodities are all the rage lately, with talks about a reflation play being a staple to every portfolio. But with all the talks about gold and oil being a safeguard against government spending destroying the value of the dollar, it is a wonder that silver has remained hidden for so long.

What makes silver look far more attractive as a store of wealth and medium of diversification are the fundamental factors solely affecting silver. With all precious metals, risk aversion sentiment is a huge factor in driving up demand, but silver has seen a significant decrease in inventories and supply pressures. COMEX Dealers Silver Inventory has fallen sharply from nearly 80 million registered ounces at the end of November 2008 to around 70 million at the end of March.

Unlike gold, which is held in significant amounts by governments worldwide, governments hold a tenth of their gold in silver, making a sudden and big sale of silver highly unlikely. In fact, including governments and all other major players, Warren Buffet is one of the bigger holders of silver.

Unlike gold, which is seen as solely a store of value, silver has a variety of industrial applications that make it indispensible. These applications include heat and electrical conduction, light reflection, lubricant, alloy and several biomedical uses. Additionally, future industrial consumption outlook is very positive in that all the new technologies - solar, battery, laser and water purification - require silver.

Given these factors, no wonder there are rumors circulating among silver analysts of price manipulation. Silver analyst Ted Butler accused giant financial institutions and singled out JP Morgan as the leader of downward price manipulation of silver. While this worked out fine when supplies of silver were relatively large, dwindling inventories have made price manipulation a huge area of concern.

Regardless of the rumors surrounding silver, one thing is for certain - unlike gold, physical amounts of silver are limited. Silver supply must increase (driving up the price of production and, therefore, price of silver) or demand must decrease, which does not seem likely given the large variety of uses of silver - industrial and financial.

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