The Silver Sleuth
Source: Jeff Clark, BIG GOLD (10/28/10)
"The big picture on the silver price is extremely bullish."
Following are a couple new reasons to own silver that a lot of mainstream investors probably aren't aware of. . .
Due to increased demand from industry and investors, silver exports from China are expected to drop about 40% this year. And that's actually an improvement; customs data show exports plunged almost 60% through the first eight months. China exported about 3,500 metric tons of silver in 2009, but has exported only 970 tons through August of this year.
What a lot of Westerners don't know is that China ended export "rebates" two years ago to stem the shipment of natural resources leaving the country. As a result of the regulation, silver exports decreased in 2009 but are nothing like what they're experiencing this year. In other words, the large drop in exports is a direct result of a huge increase in demand within China. According to one Chinese banker, the spike in demand is coming from all areas—jewelry, investment and industrial. In his words, it's led to a "physical market shortage in the Far East."
How important is this? China is the world's third largest producer of silver (after Peru and Mexico), so the amount of silver coming to the global marketplace this year will drop by more than 74 million ounces. This represents roughly 8.3% of total annual global supply from 2009. If worldwide demand continues at its current pace, where is the extra metal going to come from? This alone tells us the price of silver will move higher.
The next item I sleuthed out was that the U.S. Mint is expected to release a new 5 oz. silver bullion coin this year—the first ever. The coin will be 3 inches in diameter and have a composition of .999 fine silver. I've read the 5 oz. bullion coins will be near-exact replicas of the 'America the Beautiful' quarters. There will reportedly be five different designs, and the mint plans to produce 100,000 of each. I can't wait to see them.
The coins will be classified as bullion, which means they should be available to the same dealers already authorized by the Mint. This will likely create excitement in the silver market, especially when you consider its affordability. At $23 silver, the 5 oz. bullion coin will cost $115 plus premium. An ounce of gold runs $1,340 as I write, while five ounces will cost you $6,700 plus commission.
Perhaps most bullish is the fact that silver is vastly underpriced when compared to gold. Look at it this way—gold is currently priced 57% above its 1980 nominal high of $850; silver would have to more than double to reach its 1980 nominal high of $48.70. And that's excluding any inflation-adjusted calculation. Yes, silver's spike, in part, was a direct result of hoarding by the Hunt Brothers; but my question to the skeptics is: What's keeping us from seeing similar stockpiling today? What if there are several Hunt Brothers out there?
It's true that central banks don't buy and store physical silver, so one source of demand that's common to gold isn't present for silver. But let's keep things in perspective—demand for all forms of silver is rising, and we see no reason the trend won't continue. And with indicators like decreasing supply from China and increased attention from a new bullion coin, I'd say the big picture on the silver price is extremely bullish.
This silver sleuth says buy some silver on the next dip. There are lots of reasons you won't regret it.
Ed Steer, editor of the free Gold & Silver Daily newsletter and longtime GATA member, believes that silver will go to the moon—and soon. Read his explanation, and learn how you can profit from this enormous upswing. Details here.