http://www.munknee.com/2011/10/dont-be-misled-here-are-five-common-myths-about-silver/ 1. Silver is an "economically sensitive" metal During the recession of 2008-2009, the CPM Group estimated that silver demand from photography, jewelry, and industry dropped by roughly 80 million ounces (CPM Silver Yearbook, p.69). Mine supply also increased by about 30 million ounces, along with a 15 million or so increase in recycling. Therefore, in order for the price of silver to remain stable (theoretically), you would need investors to make up this roughly 100 million ounce difference, which is exactly what they did. Given the fact that people understood the need to buy precious metals during a banking crisis, investment demand for silver increased by nearly 100 million ounces at the same time as demand fell and other sources of silver also increased. (p.11) Over the course of 2008 and 2009, the silver price more or less remained stable, even as it saw wild swings induced by paper trading. As such, during one of the worst recessions in modern memory, real, physical demand for silver cancelled out declining industrial use. [That is] an important point to remember when someone tells you the silver price is destined to go down in the next recession. 2. Silver coins and bullion are more plentiful than gold In fact, it is the exact opposite [- silver coins and bullion are less plentiful than gold]. Being generous (and using data from the CPM Group as well as the Silver Institute) there are maybe 1.4 billion ounces of silver coin and bullion in the world, versus roughly 3 billion ounces of gold coins and bullion. Yes, it is true that recently about 80 million more ounces of silver bullion/coins are produced each year than gold ones, but that still means that it will take over 15 years before the silver stockpile in the world even equals that of gold, let alone becomes greater. So why is the price of silver something like 50 times cheaper than gold? Ask the paper speculators above. 3. The high price of silver will drive down demand from industry This one has had no basis in fact for the period from 2000 to 2010. During that decade, industrial demand, according to most estimates, basically remained flat (GFMS World Silver Survey, 2010). This is amazing when you consider that the price of silver went from 4 dollars to over 20 in that period. Because silver is used in such small amounts in things like electronics and solar panels, increasing silver costs have yet to dampen demand for highly desired toys like computers and cell phones, and many silver experts believe that such demand will only increase in the years ahead. You should realize that a rising silver price does not seem to dampen industrial demand. 4. At the right price, billions of ounces of silver will get recycled Many believe that there are nearly 6 times as many ounces of silver jewelry (and silverware) than gold jewelry in the world. So you might think that there is a lot of silver that will get melted down someday. [Two problems] with this argument is that much of this silver either a) costs way more than even the current bullion spot price and b) is held in very small amounts all over the world by over 1 billion people (oftentimes women). They won't care to sell for a very long timeif ever. There is an even more important point here. I bet most people who claim to follow precious metals don't realize that as of 2010, we had yet to see more silver recycled than during 1980. That is thirty years of silver recycling more or less going nowhere, even as the price of silver spent more time above 20 dollars an ounce in 2010 than in 1980. I am going to be generous and guess that we will finally best the old recycling high this year in silver (at over 300 million ounces) but in a world where 300 million ounces of silver is only 10 billion dollars, and in a world where investors are slated to purchase nearly that much silver in physical form over the next couple of years, you really have to wonder why anyone would think there is all of this silver just lying around ready to be brought to the market to cool off silver's price. Given what I said about how impervious industrial demand is to silver price increases, a lot of whatever silver jewelry gets recycled will be used and consumed by industry (even assuming that preservation techniques get better as the price goes higher.) I also would not expect mine increases to somehow meet demand: few industry experts believe silver can increase more than 4 or 5 percent a year (roughly 50 million ounces, or less than 2 billion dollars), especially when nearly 80% of silver is a byproduct of metals like copper, lead, and zinc. 5. Retail silver investors are fickle/ there is no plan to remonetize silver This myth had some basis in truth, at least according to the experts who tracked silver buying and selling activity in the 1980s and 1990s (such as the CPM Group or Silver Institute). Many agree that retail investors (probably following the lead of governments) sold far more silver than gold during the twenty years between 1985 and 2005 probably to the tune of over 1 billion ounces so many felt that silver investors were flakes who really didn't have the staying power of gold investors. As I mentioned above, it may have just been the case that average investors followed the lead of governments, since those governments dumped far more silver than gold during the same period (gold is the only precious metal held by central banks, in addition). I am struck by how many proposals there are like the one from Hugo Salinas Price in Mexico, attempting to bring back silver coins into the market in his country, [and] all of the state legislation in the United States aiming to bring back both gold and silver into economic transactions. Remember, silver is perceived to be the money of average people (even as it is rarer than gold) so any grassroots effort to bring back precious metals into everyday transactions will dramatically increase silver's value. We have already seen the amazing turnaround in silver retail investment buying over the past few years (hundreds of millions of new ounces) and I think some people are slowly waking up to how undervalued silver is. But believe it or not, many, many more have yet to do so.
Those beautiful silver bars in the photo on that article's page... that's what the Perth Mint ought to be selling to people, not those ugly cast bars they peddle. Sorry, had to say that. Carry on! Good article. I wonder what the "breaking factor" will be which ultimately brings silver up to its true value. Clearly it will involve a permanent decoupling from the paper silver spot price and the physical silver price. But what would create a brand new and separate spot price for physical silver? And would paper silver even survive such an event, since it would officially mean that it is backed by NOTHING. Nobody would buy it at any price. I think paper silver has to die out entirely simultaneous to real silver's price being brought to what it should be. But what could cause such a thing to actually happen?
How is it possible for a price to remain stable and yet have wild swings? It might be paper trading but it is still the price that physical is based on. During the last half of 2008 the price of silver dropped 50%. Over 2009 it tracked back up. I would hardly call this more or less stable. Ask any dealer if they sell more ounces of silver or gold. There is a big difference between total amount of a commodity and how much is converted into coins and bullion. This one is easy to argue either way. While demand has increased (according to The Silver Institute - Industrial demand has increased almost 140 million oz from 2000 to 2010. http://www.silverinstitute.org/supply_demand.php), it still has not reached the peak of 2007 when silver was about $14US/oz. If you take into account the decrease in use in the photographic industry - the industrial use of silver has dropped by 80 million ounces over the last 10 years. This is due to changing technology - the same thing that always happens. As the price of things become more expensive - alternatives or more efficient uses are found. This point shoots itself in the foot!! The reason we haven't seen recycling like 1980 is because we haven't seen the (inflation adjusted) price that we saw in 1980. If the price increases to the sort of level again - we will see that level of recycling again. All investors are fickle - all retail buyers are fickle - witness the changing fashions in almost everything. As for monetizing silver - we go around this round about every other week - and have done for years. Without going into a long discussion here - it is impossible with the complete collapse of all major economies and even then - if history is any guide - we will continue to have a fiat currency (eg Germany, Argentina etc - all major economic collapses and still use fiat). malachii
lol - thanks for that :lol: I just love the mirth you bring. Tip: Stick to RE ... that is clearly where your knowledge lies
Good write up thanks. However I dont agree with the point about industrial demand not dropping if Silver is too high. There is no way in hell manufacturers are going to sell a $20 toaster with $5 worth of silver in it. I remember when silver hit $50 2 large companies came out (Kodak was one of them) and said that they are looking for alternatives to Silver due to its high price...and that was just at $50. You also say that from 2000 to 2010 industrial demand was flat? Not such a positive sign to be honest. What if Silver goes to $100 or $150? You think companies wont desperately look for alternatives? I guess we don't really know and will have to wait and see what happens. The fact is money talks and if there is an alternative they will make the switch. Now whether or not industrial demand will matter in a few years remains to be seen, as Mike Maloney has said that investor demand is what will ultimately drive up the price of Silver.
Yipee - it's high quality posts like this that highlight your obvious superior intellect and ability to put forward your arguements in a clear, concise way. Keep up the good work guiding us to the new world. malachii
I can't see silver or gold at any alloy concentration being used as common coinage again - You can't mint coins that may at some time in the not too distant future have a higher melt value that their face value.
Wow - didn't know you were that young... the current generation Y is the only generation to have lived in a fiat only currency system, but any other generation would have had experience of real money. I suppose if the inbreds who are behind the 20th century scam that is the fiat currency system survive the next big war with its resulting recriminations then i guess mankind will remain slaves to bankers via their fiat system. Personally i am quite hopeful that the inbreds will not last this century out...
I can't see silver or gold at any alloy concentration being used as common coinage again - You can't mint coins that may at some time in the not too distant future have a higher melt value that their face value.
