Silver Prices to Double from Here?

Silver  Better Opportunity Than Gold YearIs silver presenting an even greater investment opportunity than gold bullion?

It’s been well documented in these pages that demand for gold bullion is increasing and supply is declining due to lower prices. The silver market is going through the exact same thing.

Last year, the Indian government decided to curb demand for gold bullion in that country by increasing the duty on gold imports. This resulted in a significant decline in gold bullion imports. But what went unsaid was that silver demand skyrocketed as gold bullion demand fell. In 2013, silver imports into India almost tripled to 5,478 tonnes. (Source: Reuters, March 4, 2014.)

Demand for silver is increasing here in the U.S. as well. The table below shows demand for Silver Eagle coins sold at the U.S. Mint in the first four months of each year since 2011.

U.S. MINT SALES OF SILVER EAGLE COINS

Month 2011 2012 2013 2014
January 6,422,000 6,107,000 7,498,000 4,775,000
February 3,240,000 1,490,000 3,368,500 3,750,000
March 2,767,000 2,542,000 3,356,500 5,354,000
April 2,819,000 1,520,000 4,087,000 4,590,500
Total Sold 15,248,000 11,659,000 18,310,000 18,469,500

Data source: U.S. Mint web site, last accessed May 1, 2014

From the table, you can easily see that the demand for silver coins in the first four months of 2013 and 2014 was greater than it was in 2011 and 2012. 2011 was the year silver prices were reaching $50.00 an ounce. In 2012, silver prices were relatively flat. In 2013 and this year, as silver prices declined, we saw more buying of silver coins; silver prices are bringing more buyers.

On the supply side, there are constraints in the silver market. As silver prices have fallen, producers that have higher costs pull back on mining and exploration.

With that said, according to the U.S. Geological Survey (USGS), in December of 2013, U.S. silver mines production declined more than 13% from the same period a year ago. U.S. mines produced 87,800 kilograms (kg) of silver last December compared to 101,000 kg in December of 2012. (Source: U.S. Geological Survey, February 2014.)

I am as bullish on silver as I am bullish on gold bullion.

In fact, for silver prices to rise 100% from their current level, they will need to hit $38.00 an ounce—a level not strange to the metal (it’s been there before). For gold bullion prices to double, gold prices will need to hit $2,600 an ounce, a level gold has never seen…yet.

In my opinion, the recent pullback in silver prices is creating an opportunity for bottom-fishing investors as well-known silver producers are selling for deep discounts.