Silver Demand Has Soared While the Price Has Tanked – Why?

December 28, 2013 | By | Reply More

As the old year fades to an end silver has regained the $20 an oz level. The question is whether this is just a last gasp effort before a further plunge to way below $18 an oz that so many of the doom monger analysts have been warning us of or is it a reawakening to those fundamentals that drove the precious metal sector to all time highs in 2011?

As our readers will know we have been expecting sanity to return to the sector for a year or more and have to admit that our optimism was misplaced, however here we go again!

Effect of Futures Trading on Gold & Silver Prices

Both gold and silver are volatile markets, if for no other reason than that they are relatively small, so with silver being the smaller market of the two its percentage moves are greater than gold nine days out of ten but follows golds lead up or down.

We have gone into the whys and wherefores of the disproportionate effect that trading in paper futures has on both metals prices to the detriment of the physical market in previous articles. That has never been more apparent in the case of silver than it is today.

Simply silver demand worldwide has soared while the price has tanked, throwing the supply and demand into disarray. The fact is that demand for silver in 2013 has outstripped annual production.

In any orderly and not manipulated market this would lead to higher prices until a balance between buyers and sellers has been met. The most obvious culprit has been the futures market trading in paper contracts where it is estimated that monthly turnover exceeds the total physical supply available to the market by a factor of ten.

Some theorists also are of the opinion that forces in concert with the Fed use the silver market to bring about a fall in the price of gold. More upon that can be found in earlier articles. True or not,we could not possibly comment!!

Indians Switch from Gold to Silver

The facts are these. India has now become one of the worlds largest consumers of silver, surging this year to nearly 5000 tons, just about 22% of annual silver production. That is up from virtually nothing of consequence in 2012.

The Indian governments imposition of a 15% tax on gold imports to protect the rupee is primarily the reason. The Indian public, denied gold, have turned to silver as a store of value against their fragile  paper currency.

Gold and silver have served them well for many centuries. Are the western currencies, underwritten only by worthless paper any stronger, other than in questionable theory, than the rupee?

Silver Eagle Sales Reach Record Levels

By November sales of US silver eagles totalled 40,175,000 , already more than 2011when the price of silver was just short of $50 an oz. The real buzz in the sector is that while ETF gold holdings have tanked by 30%, those ETFs holding physical silver have actually risen by 6% this year.

Doesn’t this suggest that something is very badly out of whack in the pricing of gold and silver.

Silver to Chart its Own Course

Bearing in mind that silver, unlike gold, has many and growing industrial and medical uses, as an additional bonus to demand. In a world believed to be recovering from the recession spawned in 2008, it would not surprise us if silver departed from its traditional lock-step with gold in the coming year and made its own pace in the precious metal market place.

Futures Seen As Major Drawback In Precious Metals Recovery

Of further significance is the fact that silver annual production is declining, along with gold and PGMs, mainly due to the poor price performance of the metals in the last two years causing marginal mines to close and major cutbacks in exploration and new mine development.

The futures market is the major drawback to the revival of the precious metal sector and in the case of silver,  there are some reasons to believe that it may very well be about to lose its sham and artificial influence during 2014 .

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