What The Chinese Are Buying?

Due to significant price price drop for precious metals (gold and silver), people around the world are massively buying up both gold and silver at such good price. Take China as example, on June 11, almost 10,000 people line up in front of a gold shop to buy precious metal. The buyers lined up during the three day Dragon Boat Festival.

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While the PAPER price of gold and silver may have dropped nearly 25% this year, it’s clear that PHYSICAL demand in the real world is soaring.

Gold and silver tend to trade together, however the demand for these two metals is quite different. The biggest demand driver for silver is its industrial use. While gold is driven by investment demand from both private citizens and central banks. Demand for industrial silver uses in electronic devices (such as smart phones, air-conds, TV, computers, etc) is increasing. Demand outlook for silver is better than the demand outlook for gold.

While gold is roughly double its nominal high of $850 in January 1980, silver is still barely below half its nominal high of around $50 an ounce set in 1980 and April 2011. That makes the white metal affordable and such a bargain for the average investor looking to protect the value of his wealth.

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Eric Sprott, the billionaire Canadian investment guru, recently said:

“I think silver will be the investment of this decade whereas gold was the investment of the last decade. Silver will outperform gold. I believe silver will trade down 16:1 ratio to gold…Your return will be 300% more. If you have the patience and can stomach the volatility, I think silver will by far be the better investment going forward.”

In the first 5.5 months of 2013, U.S. Mint sold more than 23 million American Silver Eagle bullion coins. That’s the first time ever the Mint has sold this many coins so early in the year, setting a record in the 27-year history for this coin. If price continues to stay this low, sales is expected to exceed historical high in 2011. Do note that this is the data for 1 coin ALONE –  American Silver Eagle.

silver-prices-investment-demand-chart

The reality is, coin dealers both across the U.S. and locally in Malaysia have been regularly selling out of their inventories, desperate to get new allocations. Find out more about the physical silver shortage in Malaysia.

Silver prices ended April down $4.14 an ounce, or 14.6%, at $24.42 an ounce, marking the third consecutive month of declines. The metal was little changed in March, trimmed by just $0.10. In February, silver shed $2.92. In January, it gained a modest $1.12.

However, do not get overly concerned on short-term fluctuation in paper silver price due to economic noise. I personally treat it as a great buying opportunity when price is low. Silver is an industrial metal first, precious metal second. Two third (2/3) of the annual physical silver supply went to feed industrial demand. Industrial demand requires physical silver, while the fluctuation of price is paper price. Get it? The demand for physical silver continue to be expected as strong in the coming years:

silver-prices-industrial-chart

Global industrial consumers typically don’t hold large reserves of silver thanks to just-in-time supply in production practices. A huge rush in orders could trigger a silver industrial supply shortage. Earlier this year rumors swirled that Apple  iMac “production problems” were actually tied to a silver shortage. Apple’s iMac and iPad screens use more silver than the older models.

Silver Malaysia eBookTo find out more about silver investment in Malaysia, take a look at the eBook: Practical Guide For Investing Silver In Malaysia

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