Silver has been considered a precious metal throughout human history. It has been mined with zeal since ancient times. No doubt, many people say the silver market is sometimes volatile. They ask when is the right time to buy.
More than 877 million ounces of silver are mined each year. Importantly, new industrial processes continue to consume more of it. Silver analysts, such as those at JP Morgan Chase in New York, believe that demand from solar energy producers and others will drive silver prices much higher over the next decade.
Why Buy Silver Now
JP Morgan Chase’s precious metals “strategy” is based on Modern Portfolio Theory (MPT) asset diversification. Silver is historically inexpensive, supply is low, and silver demand is predicted to increase from today’s levels.
This simple story is compelling for investors in search of value. Long-term gains from financial assets like seek reinvestment, and silver is a prime opportunity for a portion of investors’ funds.
Silver and the Solar Industry
According to BRE’s IHS publisher in the UK, the demand for solar power is predicted to increase 30 percent year-to-year. China, despite fluctuating stock markets and reports of economic slowdown, continues to install solar energy components faster than others but people around the world see the long-term value of solar energy and they prefer it to carbon-based energy generation.
Most PV cells are made with silver paste. The solar industry predicts use of about 70 million ounces of silver, a bit less than 10 percent of the world’s annual production, in 2015 to 2016. PV production used more silver from 2014 to 2015 as appetite for solar increased about 7 percent.
World Silver Survey
The most recent World Silver Survey (Silver Institute and Thomson Reuters) reported that strengthening of the U.S. dollar and a move away from commodities by investors in favor of equity assets would temporarily depress both silver and gold prices. This has already happened.
However, longer-term prospects for both silver and gold should improve when the climate change summit of major countries are expected to reach an agreement at year-end 2015.
Silver Supply
Analysts on Wall Street continue to ask where new sources of silver production will be found. Unlike gold, silver is used by a number of manufacturing processes. Silver mining production grew about five percent in 2014-2015. Both silver and copper production increased as new mining projects in the Latin American countries came online.
New production accounted for slightly more than 30 percent of the total global supply. In 2014, Mexico was the largest silver producer in the world. Peru, Chile, China and Australia are also major producers.
New capital investment in silver mining could cause silver production to flatten or decline as silver use continues to increase at a steady rate. For instance, silver demand reached more than one billion ounces in 2014. This level is the fourth highest demand level since 1989-1990. Silver production actually declined by 4 percent in 2013 as industrial demand steadily increased.
Investor Acquisition
Investor appetite for physical silver coins and bars declined last year after a record 2013. In 2014-2015, the world’s stock markets continued to rise as bond and savings rates remained historically low. Money flowed into what investors considered was a “sure thing.” Fewer people purchased precious metals during the period. Precious metals prices, like all assets, rise and fall with supply and demand.
Silver may never reach gold’s popularity with investors. However, like copper, industrial applications and production statistics are solid predictions of higher prices.
Professional Investors
Elliott Associates, an eight billion dollar hedge fund, invested almost $200 million in private solar assets earlier this year. The investment manager believes that solar power will continue to gain popularity and is recognized as a firm that invests in “paradigm shifts” like solar vs. traditional electricity generation resources. Like other professional investment managers, the firm also recommends asset diversification for client portfolios, including precious
metals positions.
Many investment managers around the world now encourage stock market investors to re-balance portfolios and diversify. Stock market appreciation has caused portfolios to become imbalanced because, at current prices, equities may outweigh the original portfolio’s design. Imbalance can increase investor risk.
The best way to manage risk is to spread capital across asset classes, including gold, silver, and other metals. Investors typically keep some reserve cash position. If prices of any asset class decline from current levels, the investor may choose to purchase more to decrease cost basis.
Reasons to Own Silver
A properly diversified portfolio should include silver. Consider precious metals positions when rebalancing stock and retirement plan portfolios.
Central banks around the world have announced that interest rates will rise in the near future. Rising rates, China’s slowdown, or any number of political and economic woes are not the reasons to own precious metals like silver.
Silver prices are historically inexpensive. When silver starts to rise, it may do so quickly. Accumulating silver makes good sense now.
Resources:
https://www.silverinstitute.org/site/wp-content/uploads/2011/06/WSS2015Summary.pdf
http://www.cop21.gouv.fr/en
