The Return & Demand of Silver

In the previous post, I mentioned:

  • When Obama took over US in 2008, silver price was less than $15.
  • Right now, silver price in year 2012 is about $32.
  • So, how much silver price be when Obama leaves office in year 2017?

The following is the Total Return Performance of Major Financial Assets during the Obama Presidency: 4th November 2008 to 5th November 2012.

Source: http://www.caseyresearch.com/gsd/sites/default/files/Total%20Returns.jpg

Silver is a clear winner (more than 200% return). Imagine you put RM1,000 into silver in 4/11/08 and you cashed out 4 years later on 5/11/12, your RM1,000 has turned into RM3,000. Gold was only about 1/2 of the return of silver. In other words, if you put RM1,000 into gold in 4/11/08 and you cashed out 4 years later on 5/11/12, your RM1,000 has turned into slightly more than RM2,000 only.

During Obama’s presidency, Quantitative Easing (QE) 1, 2 and 3 were introduced by Federal Reserve. QE1 was supposed to fix the financial crisis in 2008 but it didn’t work. Hence, there came QE2. Unfortunately QE2 didn’t work out as good as the expected, that’s why there was QE3. One of the greatest scientist Albert Einstein said, “insanity is doing the same thing over and over again and expecting different results“. What Federal Reserve doing fits the definition, perfectly!

Tun Dr. Mahathir bin Mohamad said, QE is a privilege for the rich nations only. When Greece lost money, it cannot print currency notes or issue cheques to pay debts. Greece needs to borrow money from European countries to repay loans. Again no currency notes would be involved. The amount lent would be credited to the Central Bank of Greece which then would issue cheques to the commercial banks. We hear that banks like Goldman Sachs have recovered and are able to pay back the loans given them by the Federal Reserve Bank. The quick recovery is through borrowing the Q E money from the Fed at no interest or minimal interest and then buying Government bonds. Buying Government bonds is actually lending money to the Government. The Government has to pay interest on the money borrowed, which gives Goldman Sachs a good return. Hence the quick return to profitability of Goldman Sachs.

When US is doing all the QE they want, let’s take a look at what happened to China.

33% of the China demand comes from jewelry and coins, with the rest from industrial use in photography, solar and electrical appliances. Chinese investors want hard assets such as silver, especially when it’s cheaper than gold and requires less funding.

China government have been encouraging their citizens to invest in precious metal since 2011 hence the spike of Panda coin production in 2011. Being the 3rd largest silver producer in the world, yet China has been a net-importer for silver for MANY YEARS. In layman terms, net-importer means China consumes more silver than it has produced – by importing more silver into the country. In other words, although China is the 3rd largest silver producer in the world, the production is not enough and China has to import more silver from other countries.

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