What is really driving silver prices and can that continue?

[inflationhawk]

Not saying anyone here is wrong on the direction of the price of silver as I know there are MANY bulls here, however I am looking for your constructive thoughts on the demand side for silver (not emotional responses based on your personal holdings of silver). According to statistics I am looking at, demand that is driven by investment in silver accounts for roughly 27% of total demand, while industrial uses account for about 46% of total demand. Source: http://www.silverinstitute.org/pr07apr2011.php

If we enter into a second recession, for silver to continue going up in price, the demand/supply balance has to favor higher prices. You can count on the 46% share of total demand being impacted by a recession, but can the 27% investment demand make up for the reduced industrial demand?

Based on the jubilant opinions of silver bulls on the investment potential of silver (not just on Realcent), I was a bit surprised to learn how much industrial demand still outweighs investment demand. I am a bit skeptical of how silver can continue it's rise in the face of a second recession.

I do own silver and have no plans on selling. I have been tempted to buy more, but the research I am doing suggests that in the face of a recession, investment demand will not be enough to continue driving silver higher. I do believe gold has more to go on the upside as its demand is not industrial based, but my gold percentage of my portfolio is getting a bit hefty.

[68Camaro]

As fiat money collapses there will only be PMs to go to. Only silver is affordable for the bulk of people, and there isn't enough silver bullion in the world to provide a one ounce coin to everyone in China (much less the rest of the world). Silver coin demand at the world's 4 leading mints is out of sight, and continues despite the higher prices in 2011.

[inflationhawk]

Yes, I do see the logic in the lower price point argument (the premiums are just too high on fractional gold) and agree with that theory, but in the near term with investment demand at 27% and industrial demand at 46% (not to mention the other uses which account for another 27%) I see any lack in industrial demand as more relevant than increases in the investment demand which is a much smaller base. That should result in lower silver prices if we enter a second recession and industrial demand is adversely affected. As investment demand grows to higher percentage of demand over time I do think that will change, but my concern is the near term. Rome wasn't built in a day and it didn't fall in a day either.

[silverflake]

inflationhawk - good thoughts. But go ahead and plot the value of the dollar vs. silver for the last 5 years. It's the devaluation of the dollar that is an intangible in this equation too. I like your thoughts though.

[Know Common Cents]

Where are the Hunt Brothers when you need them to cause a market spike higher? There may be regulations in place to prevent that happening again in the US, but I wonder about internationally? Say, for example, a multi-billionaire in Singapore decided to have 100 front men begin to purchase massive amounts of bar and coin stock throughout the world. At what point (amount) would someone in a position to stop them actually sound the alarm?

Arguments are already made that the Au and Ag markets are being manipulated, so why is this much different? The market is flooded with silver on some trading days in order to drive the price down. Same in reverse and the day before a holiday in any country is likely to have a slight volume, anyway. What better way to divert the price in the desired direction when one can mask it by "light trading volume due to the holiday."

[68Camaro]

The difference via the manipulation is that the market isn't actually flooded with real silver. It's flooded with the promise of future silver (silver neither actually owned or in existence), and these short offers causes the price to change. See any of Eric Sprott's various essays/interviews on the topic.

[Treetop]

pretty sure it was the same group, the silver institute had an article awhile back about industrial demand for silver going into the future. I didnt bother looking it up but according to them recession or not industrial demand is set to rise. Obviously faster and higher without a recession....

china alone was set to use a dramatic amount more. there are many silver uses that have barely even come online yet. Especially long to medium range into the future when you get into nano technology....

there was a list in the article about the various demands set to rise. Pretty sure someone had posted it here actually, that or coinflation because those are the only places I really ever get my silver news....

[aristobolus]

"If we enter into a second recession": Wall Street may be currently debating about a "double dip", but Main Street has been in a Depression for some four years; manufacturing should be flat-line for some time to come. What I am more concerned over is massive price manipulation driving the price of PM's artificially low. However, if this occurs, we should just buy more and break the cycle!

[beauanderos]

Yes, I do see the logic in the lower price point argument (the premiums are just too high on fractional gold) and agree with that theory, but in the near term with investment demand at 27% and industrial demand at 46% (not to mention the other uses which account for another 27%) I see any lack in industrial demand as more relevant than increases in the investment demand which is a much smaller base. That should result in lower silver prices if we enter a second recession and industrial demand is adversely affected. As investment demand grows to higher percentage of demand over time I do think that will change, but my concern is the near term. Rome wasn't built in a day and it didn't fall in a day either.

I think your reasoning is sound, in fact you are correct beyond a doubt. Therefore... sell me all your silver holdings. I am willing to assume the risk, but I thus should be assured a "risk premium." I am essentially offering to create my own derivatives for silver, should silver EVER plunge $5 in one day (beyond refutation... TEOTWAWKI) I hereby go on record as willing to accept all your silver for cash at $7 below spot. PM me

[inflationhawk]

Apparently you failed to read my first post where I stated no plans for selling...regardless of how generous your offer is.

[ardorlan]

My big worry is that we are in a silver bubble, yeah, I'll say it.
I don't see what is so different today from 1980.
Can someone educate me?

PS: I think its funny how all the silver sites only like to show charts history only back to 1985.

[shinnosuke]

My big worry is that we are in a silver bubble, yeah, I'll say it.
I don't see what is so different today from 1980.
Can someone educate me?

PS: I think its funny how all the silver sites only like to show charts history only back to 1985.

Relax. I'll take you back to 1980:

http://realcent.org/viewtopic.php?f=17&t=8326

[ardorlan]

Great post, thank you.

[68Camaro]

Shinnosukes cross-reference has the supporting data. The why of it? Several of us would argue that we're not only not in a bubble, but (valided with support from many that write about the market) that gold and silver have been and still are vastly underpriced, and that the motivator for this 10 year long bull market has been catch-up from the prior 20 years of sell-off during which time gold (and other PMs as money rather than industrial metal) was considered passe and central banks were actually divesting, during the height of the fiat money ponzi scheme. Pity the Brits, who not only believed in this scheme enough to follow the US lead, but actually sold off their central bank Gold stockpiles! They've got to be simply cringing now.

[neilgin1]

Yes, I do see the logic in the lower price point argument (the premiums are just too high on fractional gold) and agree with that theory, but in the near term with investment demand at 27% and industrial demand at 46% (not to mention the other uses which account for another 27%) I see any lack in industrial demand as more relevant than increases in the investment demand which is a much smaller base. That should result in lower silver prices if we enter a second recession and industrial demand is adversely affected. As investment demand grows to higher percentage of demand over time I do think that will change, but my concern is the near term. Rome wasn't built in a day and it didn't fall in a day either.

from your keyboard to Gods Ear, may it go down to 20!!.....maybe even $10 an ounce! amen....but i dont know if thats going to happen. i'm looking long term at this whole thing, and my only fear is that holder's of PM's get too rich......oh heaven forbid that should happen.(sarcasm) because i dont know the tricks TPTB would put in place to relieve anybody of this new found wealth, and dont think they wont try and do that.
i had a "light bulb moment" a week ago, five days ago, when Tripoli fell to these "rebels".....all warfare today is asymetrical, meaning everything can be used as a weapon of what Clasuewitz called, "the contuation of politics"...could be the traditional lead and gunpowder, or it could be a nations fiat. Now Qadaffi was being a good boy, except he made one fatal mistake, he started talking about a "gold based African dinar"...now he's done....Hugo Chavez, same thing, ranted about a replacement for the dollar as global reserve currency and letting Russkies warhips visit his ports for holiday...where is he now?...been tucked away in a Havana hospital for some unspecified "illness" for a while now...meaning EVEN IF the US has to, they will use the FED, the Treasury, the media, and yes, even the bayonet to keep up the dollar...and these are some very serious very competent men, and they will NOT let a few thousand trading firms, citizens, whoever dictate where the dollar goes, they'll fight back, and they are infinitely more powerful, but we have two advantages, we have time on our side, and we only have to manage our own lil world, they have to manage a vast interconnected group of systems.
so remember , we dont own any gold or silver, we just TALK about it.

[ardorlan]

So do you think they are going after ron paul

[neilgin1]

So do you think they are going after ron paul

the media and any other organ's have bent over backwards to make him appear an irrevelancy, havent they? No, the Congressman will never be allowed to occupy the Oval Office, imo.

[Coppercrazy]

I look at it like this-lets face it the dollars in bad shape-it looks like slow death for the greenback..not to mention fiat currency across the globe is loosing luster...even the swiss franc...gold and silver have been recognized as money for thousands of years-and will continue to be.And lets face it if theres a run on either metal,theres way more fiat currency then there is physical...we havent even seen the big spike yet....as for industrial use,its noteworthy that silver is used in the most productive solar panels....and thats an alternative energy source thats just starting to take off.I think solar panel use will grow even if the economy sputters along because you end up saving money with solar power in the right conditions.

[ardorlan]

I think solar panel use will grow even if the economy sputters along because you end up saving money with solar power in the right conditions.

Such as in my home town, Las Vegas, NV

[silverflake]

ardorlan, you ask if we are in a bubble with silver and mention 1980. I wrote in another thread somewhere here that we are not in a bubble (my OPINION). See, I am a chartist. I love charts. It's how I have made my way through these tough investing times. BUt anyhow, if you look back at the run up to 1980 silver, it hit a high of $50/oz intraday only! In other words it briefly touched $50/oz on an exhaustion blowoff then plummeted. It couldn't even hold $35/oz for long. Then it busted down through $25/oz and spent the rest of the 1980's and 90's drifting down to a bottom of below $4/oz. Now, fast foward to today- silver has been in an uptrend for years and hit just shy of $50/oz this spring before pulling back to the mid 30's (ouch) but has since consolidated VERY nicely in a simmering sideways pattern, bumping it's head on about $44/oz. It has not punched through it's supports and is actually building strength. If I could wish for anything right now it would be for us to move sideways for another year. The longer it goes out, the more strength the price of silver has coiled up. Also consider that in 1980, the U.S. dollar, while no longer on the gold standard, was still - far and away - the strongest and most respected currency in the world, our debt (while accumulating) was not suffocating us and one single investing entity (the Hunt Brothers) were trying to corner the market. Now we have no sound currency ANYWHERE in the world (not even the Swiss franc anymore), silver is consumed faster than it is mined, and - the kicker of all kickers -THE GENERAL PUBLIC IS NOT IN ON THIS YET!!!!!!!!!!!!!!!!!!!!!! The price of any asset in a bubble goes in 3 legs. First the smart money gets in (that's all of us ten years ago right?), once the price starts showing signs of life, the second leg takes place - institutional buying (mutual funds, pensions, even banks) and price starts to really rise. Then comes leg number 3 - the public! This is when the asset rises to prices you never imagined possible (like the nasdaq shooting past 5000 in 2000). The public is not in, I'm telling you. I have been preaching silver to my friends since 2003. Only 2 guys I know have listened to me. When your co-workers are gathered around the coffee maker saying that they just bought rolls of uncirculated Franklin half-dollars, then and only then, do we have confirmation that we are in a bubble.

One last note - silver hit $50/oz in January 1980. Using the governments infaltion numbers (laugh), for silver to match 1980's inflation adjusted high it would have to be about $125/oz today.

Keep the faith gang.

[Market Harmony]

The total distribution among industrial "consumers" (yes, they eat it like food) is moving away from photography and into electronics. Photography had a very nice structure to it... much of the silver was not actually consumed. It was recoverable. The majority of silver used in electronics is consumed and that's it... it is not yet economically feasible to recover that silver once the useful life of the electronic component is over. Recycling today's silver tomorrow rarely includes this type of silver containing item.

So a recession hits. We saw what that did to silver in 2008... LME fix of $20.92 to $8.88 in a few months. If the same thing happens now, then silver can go to $18, right? Since we have already seen (real) inflation of 7-9% a year, then you need to build that into the prices... $20.92 X 1.08 x 1.08 x 1.08 = $26.35 was the approximate inflation adjusted high in 2008. The adjusted low was $11.19. Adjusting for inflation, then the absolute low, based on the inflation adjusted pricing, could be as low as $21.11. (11.19 / 26.35 x 49.7) But, will it get there just because it was able to accomplish that in 2008? Too many demand influencing factors have changed since then. And I won't repeat the good information that silverflake has just posted.

Things just are not the same as they used to be. And we should not be so hasty to compare 2008 to 2011. There very well may be a sell-off. But I have this gut feeling that it will not be as severe as the last one.

[neilgin1]

but has since consolidated VERY nicely in a simmering sideways pattern, bumping it's head on about $44/oz. It has not punched through it's supports and is actually building strength. If I could wish for anything right now it would be for us to move sideways for another year. The longer it goes out, the more strength the price of silver has coiled up......... When your co-workers are gathered around the coffee maker saying that they just bought rolls of uncirculated Franklin half-dollars, then and only then, do we have confirmation that we are in a bubble.
.

excellent post Flake, the bold quote is the thing...just keep banding for another year, and personally, i think by the time the water cooler gang EVEN THINKS of such things as a "Roll of Franklins", they wont be around to purchase, too high...just hafta keep wondering who the next "american idol" is gonna be. rather sad, dont ya think? nice post...charts are FUN, they help guide gut instinct, which is better, imo.

[Treetop]

-THE GENERAL PUBLIC IS NOT IN ON THIS YET!!!!!!!!!!!!!!!!!!!!!!

I heard on the radio the other day, though Im not sure how true it is that 1/3 of a percent of americans are involved in gold and or silver. In 1980 they said it was over 3 percent....

[neilgin1]

-THE GENERAL PUBLIC IS NOT IN ON THIS YET!!!!!!!!!!!!!!!!!!!!!!

I heard on the radio the other day, though Im not sure how true it is that 1/3 of a percent of americans are involved in gold and or silver. In 1980 they said it was over 3 percent....

all of my inner circle family and friends know my thing, know my bag. Nobodies followed suit, even though in family, in TIGHT friends, we have some well heeled folks...correction, one of my tight bro's did buy a few ASES rolls, patted himself on the back and probably forgot them in his pill drawer, and they represent maybe 0.000000000000001% of his net, maybe less, i got tired of the zero's. His new side biz was to open a doggy day care center. ....yeh i know. the guy's got a main biz that just prints money, even during a depression like this, and he's picking up dog poo, INSTEAD OF STACKING!!! drives me nutz.

and my wide outer circle of friends, i KNOW nobody is hip to PM's...and i am NOT going to be a PM evangelist. thats an OPSEC failure and i get weary of being a cassandra. i think i told ya'll this, but in 1984, when i was a 24 year old with a seat on the CME, i was screaming at the members on the bldg and facilities cmtte to secure our 7 story underground parking garage below the trading floors, and i got laughed at..."why, should we spend money to secure a parking garage?".....because somebody can pack a van with explosives and blow the place up...."oh, stop with the paranoia"........fast forward and i notice that the rats at the CME done abandoned the old floor and moved into the Board of Trade floor, where the whole complex was built in the 30's and is SECURE.

i guess family knows that if stuff gets weird they can always check into the Chez neil, and be welcomed with love, but it drives me crazy that i'm alone in this, instead of we, as a family, banding together, and just being smart. Forget all the drama and bs, and listen to what i'm telling yall...but nope. i sure wish i had a family wingman. sorry for the whining, do any of you all have a sit like that?

[68Camaro]

i guess family knows that if stuff gets weird they can always check into the Chez neil, and be welcomed with love, but it drives me crazy that i'm alone in this, instead of we, as a family, banding together, and just being smart. Forget all the drama and bs, and listen to what i'm telling yall...but nope. i sure wish i had a family wingman. sorry for the whining, do any of you all have a sit like that?

My bet is that virtually every one of us is in that same situation. If anyone listens at all, it is likely our spouses (and some of them may not be - which makes it more difficult). In my case one of my daughters also did listen; she's an exception, my wife calls her my mini-me (in thought, not in looks, thank goodness for her! LOL). Other than that, there is likely no one else in my circle except people that will be more than willing to sponge off of me (and already try to - I'm charitable, I'm just not an enabler) when things go south.