In this interview James Turk outlines the argument for Silver at $400 By 2013 – 2015.
This is the best time to purchase physical silver and StraightSilver.com offers some of the best Pure .999 Silver Bullion on the Market.
In this interview James Turk outlines the argument for Silver at $400 By 2013 – 2015.
This is the best time to purchase physical silver and StraightSilver.com offers some of the best Pure .999 Silver Bullion on the Market.
Part 1 of 2
Part 2 of 2
Introduction: David Morgan is a widely recognized analyst in the precious metals industry and consults for hedge funds, high net worth investors, mining companies, depositories and bullion dealers. He is the publisher of The Morgan Report on precious metals, author of “Get the Skinny On Silver Investing” (Morgan James Publishing, 2009), and featured speaker at investment conferences in North America, Europe and Asia.
Daily Bell: Let’s ask some general economic questions first. We asked some of these last time, but you can update us. Are we at the end of the economic crisis in the West or is there more to go?
David Morgan: We are not at the end of an economic crisis in the West. The crisis is a debt crisis that emanates primarily from the reserve currency of the world which is the US dollar. Until this debt problem is resolved one way or the other crisis will continue. It may not manifest in a manner or in a timeframe that most people expect nonetheless it will continue.
All debts are paid eventually. There’s two ways for this debt situation be resolved. One is by a direct default on the debt of the US government and the second is by defaulting on the currency itself. At this point in time almost everyone expects one or the other as the Federal Reserve has taught us time and again. Over and over, it comes into the marketplace to boost the markets by printing more money and stimulating the economy a global basis, and eventually that makes the currency worthless. Right now there’s a fluctuation between the United States and the European markets. The euro is no better than the dollar. All fiat currencies and are based upon the faith credit or trust of the nation state or global economy as a whole.
Daily Bell: Is America due for significant inflation?
David Morgan: The problem with inflation is that it is measured in today’s “1984″ world. What we find is that government’s statistics mean very little. Since the US government takes out food and energy from the overall inflation index, the index is almost pointless as those are the two most important facts for any living human being. Thus government economists can say that inflation is whatever they want to say. Inflation is probably somewhere around the 10% level in the US, and of course again the things you need the most food and energy keep increasing in price.
But many people don’t understand is that there’s no need for a hyperinflation for the US economy to have a greater collapse than already exists. In advanced capital markets, the bond market is a governor on the overall health of the system. As interest rates increase because people no longer trust the currency, the bonds fall in value. This is basically what took place during the Volcker administration of the Federal Reserve back in 1980.
Daily Bell: A crashing bond market is hugely deflationary.
David Morgan: Perhaps, but if we look at what we know as an absolute fact right now, it looks as if the Feds wish is to inflate the problem away. Of course this can only go on for so long, as sooner or later someone determines that the dollar is not worth the paper it’s printed on and gradually people start to move their dollars into anything tangible that’s not a paper asset. This is why the precious metals are such a strong indicator what’s going on under the surface of the global currency markets.
Daily Bell: How about companies. They seem to be doing better. Is this a good sign?
David Morgan: Big US companies are full of cash at the present time. However they’re not ready deploy this cash because they really don’t know where a good place to put the cash to work exists. US consumers are burnt out, basically, burned as blackened toast. They can’t borrow any more; their only savings is their overprice “home,” and that’s still falling in value. Since so much of the US economy is based on consumerism these companies have decided to sit on their cash. Off course, it’s a good sign that some companies are profitable; in real free market capitalism profit is a legitimate motive.
Daily Bell: How would you grade Ben Bernanke’s performance as head of the Fed?
David Morgan: I would give him a B-, and I know that may seem shockingly high.
Daily Bell: Yes, that’s high to us. We’d give him a Z.
David Morgan: He’s in a horrible no win position; at this point, he has far less control than many think. His press conferences do not seem to be helping. I recall watching him on “60 Minutes” and his lower lip was quivering as he spoke. I thought this poor fellow is not a practiced hypocrite like most of the U.S. politicians; he should do as little in public view as possible. So, I will withhold further comment for now, but from what I have seen, my advice would be to send a Public Relations type to read a prepared statement.
In my view there is only one thing that will help and that is an immediate return to the Glass-Steagall Standard that was removed during the go-go derivative years. We must let this truly worthless debt perish and soon before the whole system does a repeat of 2008 and never gets off the mat.
Daily Bell: Seems like the mat is as good a place as any. Is significant inflation “baked into the cake?”
David Morgan: Not necessarily! First, as an Austrian-oriented economic observer, let me be clear that there is enough “money” in the system to cause a hyperinflationary blow out in 12 milliseconds. So, it is NOT a function of how much funny money that is in the system but what it is doing.
If the velocity is very low, then it is as if the over-abundance of “money” does not even exist because the currency is just sitting. In the U.S. the turnover is very low because there is little demand for money as consumers have stopped spending. Overseas, however, the velocity is increasing. But until the velocity gets to a point where it is having an impact on prices, which is how most people understand inflation, we cannot be 100% certain that inflation is baked into cake. A deflationary wild card could still take hold.
For a quick thought experiment, let us say overnight all commodities are settled in Chinese yuan. The U.S. dollar is suddenly void – is that inflationary? It would be hugely deflationary and have the same effect as the end of a hyperinflation. The currency is worth -NOTHING! So in a bond default bonds are worth nothing, and the currency has value; or in a currency default the currency becomes worthless and the associated bonds as well. Go watch the movie “Gone with the Wind” for a good reminder about the beliefs surrounding money and what kind of lessons lie ahead.
Daily Bell: Where does silver go from here?
David Morgan: To be clear we are doing this interview after silver nearly hit $50 and fell to $33 and change. At this point (mid May 2011), silver will establish a trading range in my view. It is far too early to know what that range will be or even if I am correct.
Daily Bell: What are the best investments to make throughout the business cycle, and do they change over time?
David Morgan: Yes, they do change over time,. Early in the cycle from a hard-money point of view, almost any exploration company is a good bet and these companies are usually more dependent on promotion than merit. As the cycle matures then mid-tier growth companies do the best overall. Finally, in the final mania stage, the real crummy penny stocks do the best … but be careful! Throughout the entire cycle a pure silver or silver and gold (metal) investment is usually superior to a gold or silver stock investment.
This has been proven again and again, and each year I verify it for my members. We’ve beaten the heck out of the averages, but most investors don’t. In other words, following the example in The Morgan Report would have provided very superior gains to a pure silver or gold investment.
Daily Bell: Explain why silver has historically been called the people’s money.
David Morgan: Silver has been used for longer periods of time, in more places in the world, and by more human beings for money than anything else … period! End of story! If you have the ability to think then no further comment is necessary.
Daily Bell: There are some that believe that silver is a secondary money. And that gold is primary money. What about you?
David Morgan: Gold is worth more per ounce than silver and has been since the beginning of recorded history. In that sense it has a higher unit value (more value per ounce). Both serve their purpose.. Gold for international settlement and silver for individual settlement.
Daily Bell: Why did silver take off in the past few months?
David Morgan: The physical market has finally taken control after all these years.
Daily Bell: Why did it drop?
David Morgan: You can build a case in several ways, but primarily the continual increase of margin requirements brought the leveraged silver speculators down and down hard.
Daily Bell: Yes, the old trick. When silver and gold go up, it’s a bubble and the exchanges have to take action by raising margin requirements and wiping out a slew of small investors. Funny, the stock markets never raise margins when stocks are on the way up. Anyway, is it still a bull market for silver?
David Morgan: Yes, as we discussed earlier, until the debt bubble bursts precious metals will reflect just how bad the debt problems are.
Daily Bell: Can you comment on the gold-silver ratio? It has come under attack as a false or made up ratio from some.
David Morgan: It is not made up; divide the price of gold by the price of silver to gauge it accurately. It is a way to measure which metal is doing better in terms of the other one. For example when I started pounding the table to buy silver, the ratio was 80 to 1. It took 80 ounces of silver to buy one ounce of gold. The ratio is now 40, which means at this point in time silver has been twice as profitable as gold in the same time frame … BUT could you have stood the volatility?
Daily Bell: Good point. Is industrial demand for silver growing? Is there enough silver around?
David Morgan: Industrial demand continues to grow and is estimated to by 60% of the market by 2015 from the current 54%, mostly due to solar, water purification, and food preservation/packaging. There is enough silver – as price determines who gets the silver. This is not to say that a squeeze cannot take place and “shortages” do appear in certain areas. For example, both the U.S. and Canadian mints are NOT keeping up with demand.
Daily Bell: How much is the world’s silver supply increasing? What about future production?
David Morgan: Silver is increasing by around 3% per year and that will continue for the next 3-4 years, after that time frame things could get a bit dicey and we might see silver go back into a deficit situation similar to what existed between 1990 and 2006.
Daily Bell: Have gold and silver mining peaked? Do India and China play into this equation?
David Morgan: I will stick my neck out and venture the supposition that silver production could peak in 2015-2016.
Daily Bell: We’ve suggested the same possibility.
David Morgan: Indian and China both play significant roles primarily in their industrial use of silver, and that’s where some of the demand is coming from on the margin.
Daily Bell: Does price manipulation continue?
David Morgan: Yes, but it is becoming less and less effective. As our work indicated so long ago, once the physical market takes over, then the paper pushers will have a very difficult time “managing” things. But never give up on the (silver and gold) paper pushers! They are very imaginative.
Daily Bell: Where will silver end up at?
David Morgan: We called the breakout at $19 and rode it up to around the $46 level. No one knows what paper price silver will end up at… but I am on record that silver would make it to at least $100 by the top, so let’s stick to that for now and visit it again later. It is really an error to focus too much energy on the paper price. An ounce of silver and an ounce of gold never change in value actually; it is the price that is quoted in paper currency that varies. This is a reflection of the debasement of all currencies globally.
Until the debt bubble bursts or is resolved, money metals will continue to see price pressure to the upside. Of course, all markets move up and down … and from time to time gold and silver will see their prices knocked down. A true, ultimate paper price for silver or gold is impossible to forecast accurately.
Daily Bell: What countries are most hospitable to silver mining today? Mexico and Peru you mentioned last time.
David Morgan: Same this year, with China number 3. There are concerns surrounding Mexico because of the drug wars going on in that country. Quite frankly, some of the miners are near the vicinity of trouble. There have been reports of some mining incidents do to the drug problems.
Another factor that we get asked often is whether a country might nationalize a mine. This surfaced recently in Bolivia and it is a concern. Might I suggest anyone that wants to examine this in depth read Resource Wars by Michael Klare.
Daily Bell: Any important silver mining companies you want to mention?
David Morgan: We reserve this for our paid membership but there is lots of information available on the Internet and many ETF’s and even silver funds are available that people can find with very little effort. Let me remind everyone that a simple non leveraged silver investment has outperformed any silver index so far. However, again, our portfolio has done much, much better than a silver only investment.
In other words, I and our members (that follow our model) have made much more money in the mining stocks than a simple silver only investment. The stocks have lagged the metal in this most recent move, and for those that understand market cycles and want to catch up to the people that bought silver at $20 to $25, it can be done by careful selection of mining companies and the ability to hold on tightly.
Daily Bell: What’s going on with the CFTC? Any news on the silver manipulation front?
David Morgan: The CFTC has been very quiet. There are several suits that have been filed and the authorities are doing their best to put all “manipulation of the silver price” suits into one large class action suit. We are purportedly getting close, but don’t hold your breath. Governments can outlive individuals by hundreds of years, if you know what I mean.
Personally, it would benefit so many to see some resolution to this question. It has been at the heart of the silver world for so long. The opinions are so strong on both sides of the argument that I doubt any resolution would satisfy both sides. But a clear and fair rule regarding market manipulation equally applied across the board would go a very long way in restoring faith in the system.
Daily Bell: Can the powers-that-be continue to control the price regardless of CTFC action, or are they losing control?
David Morgan: They are losing it as mentioned previously; this is not to say that they cannot come up with all kinds of rhymes and reasons to further “control” things but in the end the free market wins. There will be times such as now that we will experience silver finding it way to a trading range and the market cooling off for weeks, or perhaps months. But the powers-that-be can only raise margins so many times. As long as the debt bubble continues to inflate, the pressure on precious metals will continue.
Daily Bell: Will the world end up with a new currency in the near future? Will it be silver and gold based?
David Morgan: Tough question. Steve Forbes former presidential candidate recently forecast a return to the gold standard by the United States within the next five years because a gold standard would help the nation solve a variety of economic, fiscal, and monetary ills. Such a move would stabilize the U.S. dollar, restore confidence globally and reassure the U.S. bonds market. Under a gold standard reckless federal spending would be impossible.
As Forbes pointed out, the United States used gold as the basis for valuing the U.S. dollar successfully for roughly 180 years before President Richard Nixon embarked upon an experiment in pure paper money that has contributed to a number of woes that the country is suffering from now. The only probable 2012 U.S. presidential candidate who has championed a return to the gold standard so far is Rep. Ron Paul (R.-Tex.). But the idea makes too much “sense” not to gain popularity given the terrible performance of the US economy. “If the dollar was as good as gold, other countries would want to buy it,” Forbes said and he has a point.
My main concern is not a return to a gold standard; in fact we are quite favorable to it. The concern we have is how much of the reported gold is held by the U.S. Treasury? In other words, would the U.S. have unencumbered gold to back the U.S. dollar? We ask the question because through the years so much information has built strong cases that the “gold” in Fort Knox is perhaps gone, or at best not owned by the Treasury.
Daily Bell: We’ve heard the same stories. An audit would be nice. Any other points you want to make? Any articles or websites you want to point out?
David Morgan: Let me state for your U.S. readers and soon all your Canadian readers, please check: www.Silver123.net.
This is a site that offers a silver savings program. That is a monthly accumulation program that once it is set up it continues as long as you wish. In the past this was primarily directed to the small saver but it now is also competitive for very large purchases. This methodology takes advantage of one of my Ten Rules of Silver Investing which any of your readers can obtain for free just by visiting our website: www.TheMorganReport.com.
Daily Bell: You do not write much in the public domain anymore. Why is that?
David Morgan: I spent so much of my time and money to spread the word on the problems in the financial system and why precious metals were part of the solution it took a full decade of my life. I do not regret one minute of it, but that work is on the Internet for anyone that wants to visit my thinking from the bottom until say 2010.
The demands for my time became overwhelming so my efforts are now directed to our paid members, although I still find the time to send something of merit to our free list once per week.
Daily Bell: Thanks for your time and for sitting down with us again.
David Morgan: My pleasure…
Bell After Thoughts…
We have two points to make on this article. One, we disagree with David Morgan about central banks generally and Ben Bernanke in particular. Central banking, from its inception, fixed the price of money. It is impossible to fix prices, for the market will always determine prices. The more one fixes the prices, the worse the end result becomes. And in the 2000s we have seen – and felt – the terrible results.
To the degree that Bernanke supports the current system and continues to make it viable (as viable as it can be) we would argue that Bernanke is doing a disservice to his fellow citizens. The current money system is a disaster and he is supporting it. Of course the people he works for – the Anglo-American power elite – regularly do various disservices to their fellow citizens, so this is probably no surprise.
What IS something of a surprise is Morgan’s track record regarding silver. He has been touting the benefits of owning silver for 15 years now and has a significant presence in the silver market as a pundit. He goes to the trade shows and speaks out online, yet you will not see David much (relatively speaking) in the mainstream media. We believe Warren Buffett for instance sold his silver under $10 an ounce, yet David held on to over $40.
David is a better investor regarding silver than Buffett by a long shot, but Buffett will continue to gain ink because he endorses the current lousy money system. The powers-that-be have a great affection for fiat money, which ruins people’s savings and debases their overall wealth. David would do better in the media endorsing fiat currency. But of course he won’t. He actually wants to help people.
It is most ironic that the people who have been wrong about the economy and about investing are the ones who are regularly treated as pundits by the mainstream media. Almost every single economist and investment advisor continued to maintain the world’s economy was fine until late 2007 or early 2008 when it was obvious something was wrong. And yet these are the people that the media wishes to present as “experts” in 2011. Just turn on your TV to the “investment pornography channels” and you can see for yourself. It really is reprehensible.
Meanwhile, the people who were right about the economy in this past decade – the Schiffs, Morgans and Rockwells – are basically ignored by the same Western mainstream media that celebrates the Keynesian econometric economists. In the 21st century, the wronger you are on the issues the more easily you will build a career and become prosperous via Western mainstream media programs. Ironically, Press TV (Iran) and Russia Today media channels regularly present the views of hard-money, free-market economists. In the bizzarro world of 21st century economics, the former Soviet Union regularly sponsors the free-market economists that Western mainstrean cable channels will not! Figure that one out …
Anyway, we thank David Morgan for his insights on silver. He has become successful without a great deal of mainstream media exposure and the Internet has certainly helped with the process and will continue to help him propogate his views on money metals which have been a great deal more accurate than, say, the “Sage From Omaha” (Buffett).
With tremendous volatility in gold, silver and the US dollar, today King World News interviewed James Turk. When asked about the volatility Turk stated, “In a bull market there are a lot of opportunities to be shaken out. News comes up, downdrafts occur and you will see a lot of emotional reactions, but you really have to focus on the long haul. It’s been the same thing Eric, we’ve dealt with this many times before. Over the past ten years, back in the $320’s (on gold), back in the $400’s, the $700 area, it wasn’t going to get over $1,000 and then it finally did and here we are again. But at the end of the day gold is still holding above $1,500 and that in my mind is very, very important.”
“It’s just bad news, these deficits just continue to grow and grow. We are seven months into the current fiscal year and we’ve added $870 billion in seven months to the US government’s debt. But here is the really frightening thing Eric, 40% of what the US government is spending is coming from borrowed money. In other words there is a 40% shortfall between what the US government is spending and what they are actually receiving in revenue.
This is clearly not sustainable and this is the thing that is driving the precious metals markets and I think is going to drive these markets much higher. I have been hearing they are going to increase it (US debt ceiling) $2 trillion, and from August of 2011 that is going to provide sufficient capacity to borrow up and through November 2012…What’s clear is that they are not addressing the debt problems and this uncontrollable spending.
They are just kicking the can down the road and I think enough is enough. The market is going to say, ‘We don’t believe you’ and you are going to see a tremendous move into precious metals as people exit the dollar.”
When asked if he remembers other countries with 40% shortfalls in their spending Turk replied, “Oh yeah, Zimbabwe, Argentina in 1991, and the Weimar Republic in Germany in the early 1920’s (all resulted in hyperinflation).
Without gold acting as discipline, politicians have no constraints on spending. They will spend and spend and spend until they are borrowing so much money that the market refuses to lend the money to the government and that’s where we are at the moment.
So what the government has to do is either stop spending or get the central bank to turn that debt into currency, and this is what destroyed the Continental (First official US paper currency). And what the Fed is doing with its so-called quantitative easing is no different that what happened during the period of the Continental. The central bank was basically turning government debt into currency and that’s what the Federal Reserve is doing….and it’s ultimately putting the dollar on the path to hyperinflation.”
When asked what will trigger the hyperinflation Turk responded, “What actually happens and what is quite clear is that there is usually some kind of event, it’s a tipping point. And the event causes people’s confidence in the currency pretty much to evaporate, and once that event occurs you’ve basically got six months before the currency is history.”
This article is brought to you by King World News
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After a shocking upward climb to nearly $50 an ounce, silver prices have been walloped over the past two days – plunging to $41.50 an ounce in afternoon trading yesterday (Tuesday).
But regardless of this sharp decline, now isn’t the time to panic. After all, the U.S. Federal Reserve has given no indication that it plans to tighten monetary policy anytime soon, and as a result the dollar continues to weaken.
That bodes well for all precious metals, which serve well as a store of value. Furthermore, silver has another trump card – its widespread use in industry and manufacturing.
Ask most people on the street to name the primary thing silver is used for and they’ll reply, “coins and jewelry.”
Of course, silver is used for both of those things. But coins and jewelry combined barely accounted for 30% of “fabricated” silver products in 2010 — and less than 25% of total silver demand.
Indeed, it was industrial use that accounted for the bulk of silver fabrication demand in 2010 – 487.4 million ounces, up from 403.8 million ounces in 2009. That compares to just 167.0 million ounces for jewelry and 101.3 million ounces for coins. Other major usage categories are photography (72.7 million ounces), and silverware (50.3 million ounces).
That annual increase of 20.7% in industrial use reflects a steady rise in demand stretching back to 2001, interrupted only by a brief recession-induced dip in 2009.
Demand also increased for silver use in coins (22.0%) and in jewelry (5.1%) last year, although it declined in photography (down 8.3%), a reflection of the continued shift from film to digital cameras.
Overall, demand for all fabricated silver rose 12.78%, and total silver demand jumped 14.59%.
Given the dramatic surge in industrial demand, the two key questions for silver investors are:
Let me answer those questions.
Taking the second question first, whether we can expect the growth in demand to continue, the answer is a definite “yes.”
Silver has a number of unique physical properties that make it almost impossible to substitute in the many industrial applications in which it is used:
These properties make silver virtually indispensable in a number of industrial processes and products, including:
Batteries – Perhaps the most common modern industrial use of silver, simply because almost everything these days requires a battery of some sort, with the majority – from pacemakers and hearing aids to cell phones, cameras, calculators and even toys – using the small, button-shaped silver-oxide cells. Concerns about pollution and overheating also are leading to the replacement of larger lithium-ion and other older battery types with silver-zinc units. This means demand for silver in this sector will steadily increase, since roughly 35% of these batteries (by weight) consists of the white metal.
Chemical production – Silver serves as an ideal catalyst in a number of chemical reactions, including the production of ethylene oxide and formaldehyde compounds, both of which are required to manufacture various plastics, especially those requiring heat resistance. Products using these compounds include stove handles, computer keys, appliance parts, heating system control knobs, adhesives, laminating resins, auto parts and even anti-freeze and polyester textiles used for clothing. The list is almost endless – and it required roughly 22.5 million ounces of silver in 2010 alone.
Bearings – If you’ve taken an airplane trip lately, be thankful for silver because jet engines wouldn’t work nearly as well without it. The steel ball bearings they require last far longer and turn far more smoothly when they’re coated with silver, which reduces friction, lowers metal fatigue and prevents breakdown due to prolonged heat exposure. Silver-coated bearings are also used in many other heavy-duty mechanical applications, such as oil pumps.
Electronics - Because of its exceptional electrical conductivity, silver is widely used in all types of electronics products, from printed circuit boards to plasma TV screens and computer monitors. Highly reliable silver-membrane switches are used in everything from phones and TVs to toys and household appliances. Silver coatings are also used on most CDs and DVDs.
Soldering and brazing – Silver’s resistance to temperature extremes makes it an ideal agent for joining low-pressure pipes and other materials subject to rapid expansion and contraction due to exposure to heat and cold. Silver soldering, the joining of metals at temperatures below 600 degrees Celsius, and brazing, used at temperatures above that level, is used extensively in the automobile and aerospace industries, as well as in air-conditioning and refrigeration systems and power distribution. Environmental concerns will ensure continued high demand in this area since many countries have banned the use of once-popular lead-based soldering compounds.
Mirrors and coatings – Silver has been used in mirrors for centuries, but its polished sheen and reflective abilities are making it increasingly popular for use in energy-saving windows. Silver-coated double-paned windows are said to reflect more than 90% of the heat of the sun’s rays, which helps explain why more than 250 million square feet of the glass was used last year in the U.S. alone.
Optics – The same light-sensitive and reflective properties that make silver useful in windows put it in high demand for eyeglass lenses. Silver-coated sunglass lenses can change from light to dark in under a minute – blocking just 22% of light in dim conditions up to 96% in bright sun. They also block up to 97% of the sun’s harmful ultraviolet light.
Paints - While putting silver in paint helps protect the covered surface, the main value derived from doing so relates to silver’s anti-bacterial properties. Silver paint mixtures keep the painted surface germ and fungus free, making it ideal for use in hospitals and other medical facilities, food and beverage plants, schools, prisons and other places where bacteria can grow and threaten health.
Musical instruments – Some musical instruments – particularly woodwinds like flutes and piccolos – simply sound better when made with silver and silver alloys.
Medical – Silver’s anti-bacterial properties make it useful in all sorts of medical applications, from hospital fixtures to surgical instruments. It helps prevent the spread of germs, particularly the drug-resistant “superbug” MRSA, a potentially fatal Staph infection. Apparently silver destroys a bacterial cell’s ability to bond to surfaces, causing it to literally fall apart. New products taking advantage of this silver property are being developed almost daily – some involving the delivery of germ-fighting silver mini-beads in the body using nano-particles – with great promise shown in many areas, such as treatment of burns and open wounds. Silver also continues to be an essential component in medical X-ray films.
Dentistry – Silver is used in alloy with other metals to make amalgams for dental fillings. Silver’s malleability helps in molding fillings that match surrounding teeth, and its strength protects against new damage when chewing.
In addition to the more-established applications that use silver, the metal is in growing demand in several other areas where growth is virtually assured thanks to environmental issues and the needs of a burgeoning global population.
Two particular areas of increasing demand are:
Solar energy – Silver paste is used in up to 90% of crystalline silicon photovoltaic cells, the most common type used in both private and commercial solar-power systems. Silver is also used to reflect and concentrate light in nearly all solar-collecting surfaces, including those used to generate power by boiling water to drive steam-turbine generators. More and more buildings are being designed or refitted to make them solar-reliant.
Water purification – The greatest need of the growing global population will most likely turn out to be clean water, with adequate sanitation systems a close second. Because of its germ-fighting ability, silver is increasingly being used in water- and sewage-treatment systems, and also as a replacement for sometimes harmful chemicals used in treating water in air conditioners, pools, spas and other water-intensive systems.
Given its unique properties and uses, there’s little question that industrial demand for silver will continue to steadily climb, and the potential for associated price increases will also keep investment demand on the rise – or, at the very least, provide a cushion against price pullbacks that might threaten investment profits.
In fact, there are really only two potential factors that could stall silver’s price advance:
Recycling – Because the white metal is virtually indestructible and easily reprocessed for new uses, silver recycling is a rapidly growing industry, with used X-ray and photographic film, old jewelry and fabrication wastes providing the bulk of reusable silver.
Increased mining – Although silver is relatively scarce, it is still the most plentiful of the precious metals – which helps explain why, even with the recent price increases, it remains the least expensive. Silver can be mined directly, and is often retrieved as a byproduct of the mining of gold, copper, lead and zinc. Mine production of silver totaled 735.9 million ounces in 2010, up 2.5% from 2009, with Mexico moving ahead of Peru as the world’s No. 1 silver producer (128.6 million ounces). Several new silver discoveries were announced in 2010, including a particularly rich find in Argentina, which could help that country move up from its No. 10 spot on the production list.
There’s also a significant supply of silver bullion currently being held by industrial users and investors – perhaps as much as 1 billion ounces – that could be converted to industrial use if needed.
Still, there seems little likelihood we’ll see $5.00 an ounce silver again – which is where the metal was priced in late 2003 – or even the $18.00 an ounce price we had in August 2010 when the current rally got under way.
Gold and Silver prices continued to pull back today, providing an advantageous investment opportunity. If you have been waiting for a price dip like this in order to extend your current holdings, then now is the time to act.
The recent price fluctuations can be attributed to an increased confidence in the stock market spurred on by the news of the death of Bin Laden, which temporarily eased global security concerns. However, the dollar has not benefited from this information and has continued its slump.
The drop in the price of Silver can also be attributed to the new margin limitations announced by the CME. NEW YORK (Dow Jones)–Exchange operator CME Group Inc.
CME (Chicago Mercantile Exchange Holdings) raised margins for Comex silver futures for the second time this week as silver prices soar amid much volatility. The higher margins take effect at the close of trading Friday, the exchange said. The CME revises its margin requirements as a normal course of business, and has previously raised bond requirements during times of high volatility to guard traders against additional risk. The operator owns New York Mercantile Exchange, which trades silver on its Comex division.For speculators in the benchmark 5,000-ounce silver futures contract, the exchange is raising initial margin requirements, or the deposit required to purchase a contract, to $14,513 per contract, up from $12,825. Maintenance margin requirements, or the additional capital needed to keep the contract overnight, will increase to $10,750, from $9,500.
For hedgers and exchange members, both the initial and maintenance margin requirements will also increase to $10,750 from $9,500 per contract.CME also raised margins for the Comex silver trade at settle contracts, which allow traders to lock in the day’s settlement price for their purchases or sales.
Additionally, the exchange raised initial and maintenance margins for Comex Miny silver futures and the E-Mini silver futures contracts.Thursday’s increase follows a similar margin increase Monday, and comes during the astonishing volatility in silver prices. Silver posted another huge price swing Thursday, with the front-month contract rising 3.4% to a record settlement of $47.520 a troy ounce. Investors have been flocking to this relatively small market to take advantage of the metal’s much lower price than that of gold, which is sky high.