5 Forces Driving Silver Higher

Posted by Sean Brodrick - Uncommon Wisdom

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Recently,  I’ve recommended new positions in gold and silver to my Red-Hot Global Resources subscribers. That’s because I’m seeing more evidence that the next big move higher in precious metals could start soon.

Sure, there could be another, deeper pullback between now and then. But don’t sit around and hold your breath waiting for it.

Why? Because there are powerful forces lining up to push gold to my next target of $1,710 and silver to my next target of $43.50. These are the next signposts on gold’s trek to $2,000 an ounce and silver’s surge to $50.

This week, I want to look at just SOME of those forces in silver:

1. Indian Silver Demand Is Getting Stronger. India is the world’s biggest market for precious metals. But thanks to high gold prices, more people are buying silver — both as jewelry and as investments. The majority of silver in India is used in production of ornamental items such as jewelry, utensils and gift articles.

“Silver has emerged as a fashion statement as many people find it difficult and unrealistic to buy gold jewelry at these high prices,” John Luckose, who runs a small-time gold and silver jewelry in Kochi, India, recently told reporters.

Silver imports to India rose to 1,200 metric tonnes in 2010, up 20% from the previous year. Looking ahead, a report from the Bombay Bullion Association says Indian silver imports could rise as much as another 25% in 2011!

2. China Silver Demand Is Off the Charts. Last year was damned bullish for silver in China. The country’s net imports hit a record high as it quadrupled to 3,500 metric tonnes (112.5 million troy ounces).

Keep in mind that China used to be a net exporter of silver. For many years, Chinese exports used to be a major component of global silver supply. Then in 2007, it became a net importer of silver.

Then 2010 was a banner year. And now, all the evidence is that this year is simply going to be enormous. For example, Commercial Bank of China (ICBC), the world’s largest bank by market value, says that it sold 418,000 ounces of physical silver to Chinese citizens in January alone, compared with 1.06 million ounces for the whole of 2010. That means ICBC’s silver sales in 2011 are running at a pace FIVE TIMES faster than 2010.

Why the big jump? China’s growing middle class, which now numbers more than 400 million people, is fueling an explosive growth in demand for silver as a hedge against fast-rising inflation.

3. Silver Bullion Coin Sales Are Soaring. The U.S. Mint reports that sales of 1-ounce U.S. Silver Eagle bullion coins are running 58% ahead of last year at this time.

Through February, Silver Eagle bullion coin sales reached 9,662,000. By comparison, during the first two months of 2010, the U.S. Mint had recorded sales of 5,642,500 — and that was a BIG year.

What do you think the odds are that the U.S. Mint will run out of Eagles — silver AND gold — again this year? I’d say the odds are so good you can take them to the bank.

Meanwhile, the Royal Canadian Mint, which produces the silver and gold Maple Leaf bullion coins, says it is finding it difficult to source silver in volume.

David Madge, head of bullion sales at the Royal Canadian Mint, recently told King World News that “it still remains a big challenge sourcing material. We’re looking at ways of mitigating our risk regarding supply of silver.”

4. Silver Mine Supply Can’t Keep Up. Silver mine production is expected to grow in 2011 — but it might have trouble keeping up with demand. For one thing, about 70% of silver comes as a byproduct from mines that are primary producers of other metals like lead and zinc. So silver supply can’t rise independently.

Analysts at the CPM Group say 2010 mine supply came in at 741.5 million ounces. Nearly all the new production came from Goldcorp’s Peñasquito mine in Mexico, which added 20 million ounces. Total supply, which includes scrap and other supplies, is seen at 1.028 billion ounces, up from 940 billion in 2009.

For 2011 CPM Group forecasts mine production at 769.8 million ounces — a rise of 3.8% — and they raised their estimate for output from primary silver producers to 22% from 20%. CPM expects total silver supply in 2011, including scrap, to hit 1.067 billion ounces.

But others are less optimistic. BMO Research expects silver output from mines to climb just 1.8% annually over the next two years.

On the demand side, fabrication demand is soaring. Again, estimates differ, but CPM says 2010’s total fabricated industrial demand — including electric batteries, chemical agents and coins — was 875.6 million ounces. CPM expects that demand to grow 3.5% to 907.1 million ounces in 2011.

And that’s just industrial demand. Jewelry demand is also expected to rise. I’ve already told you how coin demand is soaring. And as for investment funds that hold physical silver, well …

5. Silver ETF Demand Poised to Surge. According to a report from BNP Paribas, Silver ETF inflows and other implied investment in silver bullion will see a surge in 2011.

The holdings of the iShares Silver Trust (SLV) soared year over year. And worldwide, there are 18 different repositories, mutual funds, and ETFs that hold physical silver …


Those funds, combined, recently held a whopping 742.7 million ounces. That’s as much as all the silver that comes out of mines in a year. I wonder how much these funds will hold next year? Probably a LOT more.

These five forces are just some of the powerful factors lining up to push silver higher. Some of the same forces are lined up to rocket gold to its next level. And all of this means good things for holders of physical silver and the stocks of select silver miners.

The SLV is an easy way to play the next leg of the silver boom — there are other, more leveraged instruments that could return your investments five- or 10-fold. Whatever you do, don’t ignore the big bull market in silver. Do your own due diligence, and make sure any investment is right for you before you buy it.

Sean Brodrick is a natural resources expert and editor of Crisis Profit Hunter, a monthly newsletter with a primary mission to help you profit from crisis situations and other dynamic forces affecting the global economy. Commodities and dividend-paying stocks are central to his approach, and he also delivers practical advice for uncertain economic times. For more information on Crisis Profit Hunter, click here.

Sean is also the editor of Red-Hot Global Resources, a weekly newsletter that aims to help you rack up profits with commodity-focused exchange-traded funds (ETFs) and natural resource-sensitive stocks that operate around the world. For more information on Red-Hot Global Resources, click here.