Print 
PDF
BookmarkIf you watch silver prices closely, you must pay attention to the investment demand for the precious metal as well. It suggests the price of silver could skyrocket.
You see, silver has industrial demand as well. With the global economy in trouble—just look at eurozone, China, and other emerging economies—the gray precious metal is being ignored.
If you pay close attention, you will notice that the demand for the precious metal, in physical form, is increasing. What’s even more interesting is that the supply side for silver continues to get crushed.
Investor Demand for Silver Surging
I closely follow silver sales at major mints across the globe and they say investors just want the metal at any cost. Silver sales at the mints are surging.
For instance, the U.S. Mint has already sold eight million ounces of silver in American Eagle coins year-to-date as of February 16. With this figure, the U.S. Mint is on track to report another year of record silver sales! (Source: “Bullion Sales/Mintage Figures,” United States Mint, last accessed February 16, 2016.)
The Perth Mint is showing stellar silver sales as well. In January, the Perth Mint, which is one of the biggest mints in the world, reported its silver sales jumped 151.5% from the same period a year ago. It sold 1.47 million ounces of silver. (Source: “Perth Mint Gold and Silver Sales Surge in January,” CoinNews.Net, February 11, 2016.)
At the Royal Canadian Mint, in the third quarter of fiscal year 2015, silver sales increased by 75.9%, hitting 9.5 million ounces of silver sold. In the same period a year ago, silver sales came in at just 5.4 million ounces. (Source: “Third Quarter Report Fiscal 2015,” The Royal Canadian Mint, last accessed February 16, 2016.)
No matter how you look at these numbers, they are astonishing sales figures. And don’t forget that this is all happening while silver prices are down.
Silver Production Plummeting
Now, looking at the supply side. It’s following basic economic principles. Lower silver prices are forcing producers to make cuts, meaning lower prices are leading to reduced supply. We see the same happening at silver producers across the globe.
In the first 11 months of 2015, U.S. silver mine production dropped by roughly eight percent. (Source: “Mineral Industry Surveys,” U.S. Geological Survey, last accessed February 16, 2016.)
In Canada, we see something worse. Between January and November of 2015, silver mine output in the country amounted to 351,211 kilograms. In the same period a year ago, the total was 450,594 kilograms. These numbers represent a year-over-year decline of more than 22%. One could even say that silver production is collapsing in Canada. (Source: “Production of Canada’s Leading Minerals,” Natural Resources Canada, last accessed February 16, 2016.)
Other major silver-producing regions are also reporting production declines as well.
Where Are Silver Prices Headed Next?
When I look at silver prices, I can’t help but say that the precious metal looks severely undervalued. As I wrote earlier, silver was considered an industrial metal, but we are now seeing a significant increase in investment consumption. This is going to change the silver market.
As it stands, we are hearing central banks around the world are printing money and forcing negative interest rates. This could bring growth and, as a result, industrial demand for the gray precious metal could rise again.
If investment demand remains the same, industrial demand comes back, and supply remains suppressed, then we’ll have a great recipe for higher silver prices at hand. We could see big gains in a very short period. Time will tell us more.
By Moe Zulfiqar, BAS
Published: February 17, 2016
Profit Confidential
