Silver -- Two Sides of the Story
What drives the price of silver? Certainly it is a function of buying and selling pressure, and primarily, this price setting mechanism takes place on the COMEX. However, so much has been written recently about short selling, price management, and naked sales, and on and on, that I wanted to take a more basic look at demand. Real demand and investment demand, regardless of how the price is set, fall into two main categories. We have investment demand (monetary demand), and we have industrial demand. In this year's World Silver Survey 2008, sponsored by the Silver Institute, under the Investment Chapter it states, "Investor activity was the main driver of the high and volatile silver price in 2007."
Ah ha! Just as always maintained by me (and others), the main driving force for silver prices will be investment demand! It seems even Gold Fields Minerals Services (GFMS), which compiles the study, agrees with us.
If one considers that the main silver ETF holds almost two hundred million ounces of silver out of a possible five hundred million ounces, we can see investment demand is strong and getting stronger.
The Silver Eagle program averages around 10 million ounces per year, with 2008 being an exceptional year so far, and if we look at silver "coin" demand here, we might make a case for perhaps five percent of the silver market being demand of this type. However, my contention is that almost all participants in the silver ETF, Central Fund of Canada, Bullion Management Services, and several pool and certificate programs is the primary investment demand, although this demand is in bullion not coin form.
The largest demand for silver is still industrial demand, making up over 50% of the total demand. Some of this silver is recycled each year primarily through photography, but much also from electronics and a small amount of actual scrap silver (jewelry and coin). The total recycled silver is significant, comprising approximately 180 million troy ounces, or just under what the iShares Silver Trust holds in the SLV ETF. GFMS stated lower scrap recovery even though prices of silver were going up in 2007. Further, supply side developments were also supportive, with government sales almost halving. Lower photographic scrap is the key reason total scrap supply fell.
As stated in last week's article, l was very pleased to have the opportunity to shed some light on the merits of silver. This week we delved into the uses of silver. The link below is my interview from the Money Show.
As I stated during that interview, silver is continually used in new products, and one that I have been speaking about in the past few presentations is silver zinc batteries. The potential is huge, because the most important feature of a mobile device, be it computer, music player, or cell phone, is the life of the battery.
Today's technology is based on lithium-ion cells that are reasonably easy to manufacture and quite cheap. However, a new battery technology was announced by the company ZPower, and it is aimed at replacing the lithium-ion power cells with a battery makeup that is offering higher power outputs.
According to industry sources, "ZPower presented this new battery technology, which is based on a silver zinc composite at the Intel Developer Forum, and according to the news site DailyTech, this new battery is able to offer an energy output that is 30 percent higher than previous lithium-ion based power packs, and it is also a safe technology as the ZPower president and chief executive officer, Ross Dueber, said that these batteries can be overcharged without problems in order to allow for extended operating periods."
Finally, if you watched the video you know there are numerous uses for silver in the electrical world. Here are a few headlines I have collected over the past few years from the Silver Institute.
Superconductor Pioneers Honored With Nobel Prize
World's Smallest Light Source Comes From Silver
New Class of Silver Compounds May Advance Superconductivity
Silver Iodide Turned to Glass - Holds Promise for New Batteries and Displays
Lasers and Silver Atoms Hold Promise for Switching Future Optical Network
China Joins the Superconductor 100-Plus Meter Club
Silver to Star in New Superconductor Plant
Silver-Sheathed Motors For Ship Propulsion
New Technique Makes Silver Tougher
Silver Clusters Become the New Computer Memory
Electric Power and Silver Share a Long History
Silver-Sheathed HTS Coils to Power First 1,000-Horsepower Motor
Hi-T Superconductor Electricity Storage Device Unit Can Prevent Power Outages
Silver-Coated Wire Device Stores Electricity
Department of Energy Announces National Superconductivity Program
Tiny Silver-Coated Spheres Play Big Roles
Silver Boosts Efficiency of Electric Motors
Silver Provides Spark Plugs with Revolutionary Performance
In conclusion, silver does have a split personality: it is part industrial imperative and part investment essential.
It is an honor to be,