Silver market boom has just begun, says Jeff Clark

2011-MAR-01

Roman Baudzus writes --

Jeff Clark, editor of the Big Gold newsletter, told The Daily Crux in an interview that the rally in silver will likely continue in upcoming years. Three main factors are contributing to silver's strength.

Clark observed that the current rally is unique. Starting at a price of US$8.80 per ounce, the price of the white metal has almost quadrupled in less than three years. In the past twelve months alone the price has doubled. Three main factors are lasting price drivers – industrial demand, investor demand and supply bottlenecks. Industrial demand for silver is much higher than that for gold; moreover, demand for silver among industrial consumers is continually climbing in spite of decelerating economic growth, since the precious metal is used in more and more industrial and technological applications due to its unique features.

Secondly, investment demand from capital markets and private investors continues to grow. Demand for sector ETFs remains strong, and demand for physical metal even stronger. The U.S. Mint sold more Silver Eagle coins in the month of January than in any month since the coin series was launched in 1986. But despite these record sales, most Americans have not yet invested in precious metals, in spite of all the political and economic occurrences of the last few years. In contrast, China's net silver imports almost quadrupled in 2010. With inflation rising across Asia, many investors there are increasingly concerned with protecting their savings. Rising demand from investors around the world will likely turn out to be another force pushing the price higher.

Thirdly, the market suffers from a supply bottleneck. Estimates assume that global silver demand will amount to more than 890 million ounces this year, while worldwide silver production is now only about 720 million ounces, meaning a huge supply gap. In 2008, at the culmination point of the financial crisis and in the course of the big silver run, supply bottlenecks had already occurred, and since then silver producers have struggled to keep pace with exploding demand. Even though mints around the world are aware of and making preparations for growing demand, supply problems are slowing deliveries to customers. The U.S. Mint has had delivery problems with certain product types during the last three to four months.

Nevertheless, no buying mania has occurred in precious metals markets so far. The silver ETF SLV has not yet become the darling of fund managers around the world, and shares from silver producers like Silver Wheaton or Pan American Silver remain largely unknown among the general public – another reason why Clark expects a continuation of the precious metals rally. The share prices of gold and silver producers as well as the price development of the metals themselves show huge upward potential. When the culmination point of mass hysteria is reached, an end of the precious metals' rally had to be expected, Clark added. Giving a comparison to the silver price development in the 1970s, he noted that the silver price could gain another 500 per cent from its current level, giving a best-case price target of about US$160 per ounce.