The Screaming Fundamentals for Owning Gold and Silver
Gold and silver are not (yet) in bubble territory and large gains remain, especially if monetary, fiscal, and fundamental supply-and-demand trends remain in play.
Silver demand is growing by double-digit percentages, being led primarily by industrial uses and investment demand. The Silver Institute does a fine job of tracking and reporting on these matters.
Total fabrication demand grew by 12.8 percent to a 10-year high of 878.8 Moz in 2010; this surge was led by the industrial demand category. Last year, silver's use in industrial applications grew by 20.7 percent to 487.4 Moz, nearly recovering all the recession-induced losses in 2009, and is now seeing pronounced advances in 2011.
Jewelry posted a gain of 5.1 percent, the first substantial rise since 2003, primarily due to strong GDP gains in emerging markets and the industrialized world's improving economic picture. Photography fell by 6.6 Moz, realizing its smallest loss in nine years, as medical centers deferred conversion to digital systems. Silverware demand fell to 50.3 Moz from 58.2 Moz in 2009, essentially due to lower demand in India.
Silver Production 2010
Silver mine production rose by 2.5 percent to 735.9 Moz in 2010 aided by new projects in Mexico and Argentina. Gains came from primary silver mines and as a by-product of lead/zinc mining activity, whereas silver volumes produced as a by-product of gold fell 4 percent last year.
Mexico eclipsed Peru as the world's largest silver producing country in 2010, and Peru is followed by China, Australia and Chile. Global primary silver supply recorded a 5 percent increase to account for 30 percent of total mine production in 2010.
Again, we are comparing double-digit demand increases against low single-digit supply increases. After a decade of rather dramatic price increases for silver, the alert observer should be asking exactly why this is the case.
In table form, we can clearly see that the silver balance for the world requires both dishoarding from government stockpiles and the recycling of scrap silver. That is, shortfalls from mining have to be made up from above-ground stocks:
There's only so long that such an imbalance can continue before the shortfalls require much higher prices to cool off demand.
One of the precise reasons that I originally invested quite heavily in silver is that I came to the conclusion that the price was far too low, artificially so, and that it would therefore be a great investment. So far, so good.
Given the above fundamentals, I project that prices for the precious metals will be many multiples higher -- in today's dollar terms -- by the end of the decade.
Click here for Part II of this report: How to Play The Greatest Gold & Silver Bull Market Of Our Lifetime.
Editor's Note: Chris Martenson is an economic researcher and futurist specializing in energy and resource depletion.
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