Silver price hit $15 mark

Last Friday, Bank of Japan decided to increase its QE (quantitative easing) program for another 10 trillion Yen – from 70 to 80 trillion Yen. The amount is slightly under $100 billion dollars per year.

Traditionally QE program has the effect of boosting precious metal (such as gold and silver) price. However, silver price further dropped to $15 mark last Friday. This is in line with the descending triangle pattern we saw early October.

silver-price-friday

This is a clear sign that market movement is no longer driven by fundamental. It is driven by sentimental. The market is looking for any reason to sell silver. Regardless good news or bad news. A bad news is a bad news, a good news is also a bad news.

The fundamental of silver is showing there is a large deficit in physical silver supply.

The annual production of physical silver is approximately 25,500 tonnes. To put this into perspective:

silver-cube

Silver had a physical supply deficit of 103 million oz in 2013. In layman term if your salary is RM3,000/month and you spend RM4,000/month, you have deficit of RM1,000.

In physical silver case, here is how the deficit happens:

physical-silver-deficit-2013

At current silver price ($15 – $16), most of the primary silver producers are already selling silver at a loss. Simple due to it takes more to produce silver than it can be sold for. Imagine a product take RM100 to produce but can only be sold for RM80. How many manufacturer would want to continue producing?

The following are some of the primary silver producer and their cost for producing 1 oz of silver:

production-cost

The number shows it simply doesn’t make sense for miners to continue producing physical silver.

Silver is not like trees that can be replanted back, or fishes that can be grown back. When 1 oz of silver is used up, it is gone forever. The total physical silver demand has been pretty constant for the past 10 years.

30072845-14127913664152102-SomaBull_origin

The demand for physical silver are not reducing for the past 10 years. The Silver Institute forecasts that silver demand will continue to rise over the next few years:

forecast

With the strong demand from both investment demand and industry demand, can silver price continue to stay below production cost?

In the short term, anything can happen. That includes silver price doing lower than $15. Silver price dropped below $9 during the 2008-2009 financial crisis but spike up to almost $50 in 2011. Silver is a long-term investment that definitely requires your patience.

Silver Malaysia eBookPractical Guide For Investing Silver In Malaysia is an eBook specifically written with a Malaysian’s context for silver investment. You will learn different strategies, practical tips and tricks for investing in silver. Click here to find out more.

Listen, Silver: We Need to Talk

Jeff Clark (Senior Precious Metals Analyst) wrote a letter to Silver last week in a fun way, and Silver answered back. Here is their exchanged emails:

Dear Silver,

Happy anniversary. It was on April 25, 2011 that you hit $49.80 per ounce in the New York spot market.

Today, three years later, you sell for around $20, nearly 60% less.

Is your bear market almost over—or are these low prices here to stay? Your price has lagged gold this year, so your normal volatility is lacking. How much longer will you be stuck?

Jeff Clark, Silver investor

Here’s Silver’s polite response:

Dear Mr. Clark,

I have good news for you. While some investors have lost interest in me and my price is at 2010 levels, things will soon change.

I put together this historical chart for you, and I hope you’ll share it with your fellow silver investors. It shows every major bear market over the past four decades. The black line represents what’s taken place from April 2011 through last Friday.

Of the seven prior bear markets, four lasted longer and three were shorter. Four declined less than today; two were about the same; and only one was significantly deeper.

If I were to match the two longest bear markets, my price would stay down until this October. If it matched the other two longer bear markets, it would end this summer.

Over the past 40 years, there has been no bear market that would extend my low past this October.

Or my low may already be in.

Either way, I think it’s safe to say that I’m close to the end of my down cycle. In fact, the historical data say the opportunity to buy me at $20 or less will soon be unavailable.

Let me relay some other data to you that also signal current prices can’t last too much longer…

The US Mint (Still) Can’t Keep Up with Demand

The sharp drop in my price in 2013 unleashed a wave of pent-up demand for silver coins. Look at the response from investors.

The question this year is if those record levels could continue to be supported. The first quarter is over, so I can tell you the answer…

The US Mint sold 13,879,000 ounces of me in Q1, 2.4% less than the 14,223,000 sold in the first quarter last year. Here’s the monthly breakdown:

  2013 2014  Gain/Loss
Jan. 7,498,000 4,775,000 -36.32%
Feb. 3,368,500 3,750,000 11.33%
Mar. 3,356,500 5,354,000 59.51%

January’s 36% decline from the prior year looks big, but it’s not what you think: the Mint didn’t begin sales until the end of the second week of the month. The monthly total thus reflects only 2.5 weeks of sales.

And March sales were the fourth-biggest month ever. Add in April’s sales figures and the US Mint is now on pace to exceed 2013 totals.

It’s clear that your fellow investors think my price will go higher.

Silver ETFs Have Net Inflows (Again)

You might remember that silver ETFs’ holdings were largely flat last year, unlike the mass exodus seen in gold funds. The pattern is continuing this year.

Holdings in my exchange-traded products (ETPs) have risen 3.5% year to date, an additional 17.5 million ounces. In fact, the net purchases by silver ETPs have totaled $354 million YTD, the largest influx of all commodity ETPs!

Meanwhile, gold-backed ETPs have seen sales of 500,000 ounces, about a 1% drop.

Jewelers Love Low Prices

Low prices for me have led to increased silver jewelry purchases.

As just one example, the UK reports that silver jewelry sales jumped 40.4% in February, to 351,791 items.

India Just Won’t Stop Buying

India imported 5,500 tonnes of me last year, 180% more than 2012. Imports comprised 20% of all global demand.

Last month’s silver imports were 250% lower. This was mostly due to the recent increase in import duties, and the fact that six banks got permission to import gold, which would soften purchases of me. This could partly explain why my price has struggled.

But as long as politicians keep gold restrictions in place, Indians will keep buying me.

China: More Silver for Solar

Chinese imports of me rose drastically in February, up by 75% month on month and 90% year on year to 358 tonnes, the highest since March 2011. Though lower the following month, March imports were up 16% year over year.

China’s solar industry is growing explosively. In 2009, it represented about 0.2% of the global market; this year, it’s estimated to be one-third.

It’s interesting to note that my price rose in February and fell in March, which suggests that Chinese demand affects my price, too.

Supply Sources Are Concerning

So far, suppliers have managed to meet demand. However, there are dark clouds on the horizon…

  • Very little excess supply is expected this year, as production is projected to remain flat, and demand for me shows no signs of letting up.
  • Solar power accounted for 29% of added electricity capacity in America last year. “More solar has been installed in the US in the past 18 months than in 30 years,” says the US Solar Energy Industries Association. “Eventually solar will become so large that there will be consequences everywhere.”
  • Supply from recycling will probably be weak, because it’s not cost effective to recover every tiny bit of me from cellphones or prescription eyewear or casino chips. One report says that Americans threw away 130 million cellphones last year, containing over 46 tonnes of me.
  • Several major base-metals mines are expected to be depleted over the next several years. The problem is that two-thirds of me is a byproduct from base-metals operations—if their output falls, there will be less of me, as well.
  • The Silver Institute says that demand for industrial products made from me continues to grow.

No Regrets

As I look at your current situation from a historical perspective, I see a lot of catalysts that will catapult my price higher in the near future. It seems rather clear that as demand continues to grow, supply tightens, and my role as money grows more substantial, I will trade at much higher levels in just a few short years.

In fact, I offered to bet my cousin gold that I will outperform him before this cycle is over. He declined to take the bet.

The clock is ticking. Don’t set yourself up for regret when my price leaves $20 in the dust.

Your friend,
Silver

Silver Malaysia eBookPractical Guide For Investing Silver In Malaysia is an eBook specifically written with a Malaysian’s context for silver investment. You will learn different strategies, practical tips and tricks for investing in silver. Click here to find out more.

Solar Panel

If you do not have the time to watch the video now, I highly recommend you save this video and watch it later. Free Video Download: [Silver – The Element of Change] This is a high definition video, Google anti-virus would not be able to scan it but it is absolutely safe to download.

Did you know apart from investment purpose, silver also has great demand from industrial usages. Electronic components consumption is the largest among all. However what is worth mentioning is consumption of solar panels that are coming up fast and strong.

solar

Photovoltaic technology is the backbone of the solar industry. Initially when it started, it did not even worth registering on silver demand charts before year 2000. The amount of silver consumed by solar panel makers has risen approximately 50% per year since that time. At the point of writing this (year 2013), solar panel accounts for 5.6% of all industrial silver use.

SilverFabricationDemandbyMajorUse2012

China, Japan and India

China (on 4th July) announced to raise China’s solar generating capacity from 21 gigawatts (GW) to 35 gigawatts (GW) by 2015. That is 67% higher from previous target which mean there will be a yearly addition of 10 GW from 2013 to 2015.

Japan will increase its solar generation capacity by about 5.3 GW in 2013. Japan’s domestic solar power market is expected to reach $19.8 billion, which mean Japan will pass Germany as the world’s largest solar market and overtake Germany as the world’s largest solar energy user.

India plans to increase its solar output to 20 GW by 2020, starting essentially from the scratch. On a worldwide basis, solar power generating capacity is projected to be 20 to 40 times the amount of current capacity by 2020.

What does it mean?

According to Silver Institute, making 1 megawatt of electricity requires up to 2.8 million oz of silver. If China and Japan do increase their solar generation capacity as much as they planned, which is total of about 27 GW. These 2 countries alone would require approximately 91 million oz of silver (or 2,824 tonnes of silver). That is equivalent to 11% of global mine supply by referring to 2012 numbers.

Why does this mean to us as precious metal investors? A simple answer would be that growing demand could crimp supply and push on prices.

If the world continues to produce as much silver as it did last year, while the demand in various industrial application are growing. Given currently low silver prices and increasing difficulties getting new mines permitted… The action to take is rather obvious: buy silver now! At current market price, it only takes less than RM100 to buy your 1st oz of silver.

Silver Malaysia eBookPractical Guide For Investing Silver In Malaysia is an eBook specifically written with a Malaysian’s context for silver investment. You will learn different strategies, practical tips and tricks for investing in silver. Click here to find out more.