The price of silver could absolutely skyrocket.February, 14 2013
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You’ve heard it before: In a good year for gold, silver can do even better.
The latest TRR is no exception in terms of picking up interesting data as he’s seized on little publicised, and perhaps forgotten, historical analysis which shows that the silver price moves on a 5.58 year cycle, which suggests gold’s less costly sibling should be, if the cycle repeats again, one of, if not the, best investments around at the moment given it could be due to rise sharply again.
Mylchreest’s arguments are reasonably compelling as far as silver fundamentals are concerned, but there is the ever-continuing worry that there is price manipulation in the commodity exchanges, particularly on the COMEX, which can negate many of these factors.
But if indeed a physical available silver shortage develops, which looks increasingly likely on current supply/demand patterns, there will come a time when a physical shortage may overwhelm the manipulators. And it does seem that silver is due for a good upwards move in the relatively near future.
But more than this he postulates a strong investment case for silver and related silver equities anyway. Silver is unique in being both a monetary and industrial metal and in comparison with gold he sees the above ground silver inventory as only being between one sixth and one third of the comparable figure for gold.
He also looks at the gold:silver ratio as a pointer to potential price rises for the latter. While the long term gold:silver ratio is put at around 49 (it is currently around 53), historically it has always been much lower – Mylchreest puts it as averaging 15-16 for several thousand years. However over most of this period silver was a true monetary metal and it is arguable whether this is in any way the case nowadays which may reduce the likelihood of the ratio moving back to the historical 15 level. Indeed the ratio really started to rise to the current average with the progressive demonetisation of silver during the late 19th and the 20th Century culminating in China coming off the silver standard in 1935.
But in terms of metal production, current mining rates have silver production exceeding that of gold by only a little over 8x and Mylchreest thus sees further ‘reversion to the mean’ as ultimately inevitable during the coming years.
He looks at supply figures, including scrap and notes that the annual incremental supply of silver was, according to GFMS, 1,108 million ounces in 2011, while fabrication demand was 877 million ounces which leaves a balance of only 141 million ounces to satisfy investment intake – which GFMS just uses as a balancing figure, as we have pointed out here before. In terms of total global investment markets this represents a tiny amount in dollar terms.
Thus, Mylchreest notes, going forward investment demand will increasingly compete with industrial demand for silver which, as he sees it, will provide further support for the silver price.
Mylchreest’s arguments are reasonably compelling as far as silver fundamentals are concerned, but there is the ever continuing worry that there is price manipulation in the commodity exchanges, particularly on COMEX, which can negate many of these factors, but if indeed a physical available silver shortage develops, which looks increasingly likely on current supply/demand patterns, there will come a time when a physical shortage may overwhelm the manipulators – particularly as new commodity exchanges in the East start to have a greater impact, always assuming, of course, that the manipulators don’t try and rig these markets to the same extent too. And this shortage situation could come about sooner rather than later and while Mylchreest’s six month prediction may prove optimistic, it does seem that silver is due for a good upwards move in the relatively near future.