Silver prices may be down, but the precious metal shouldn’t be shunned by investors. Silver could be presenting a great opportunity for long-term investors.
I follow one rule of investing; when not a lot of things make sense, go back to the basic economics of supply and demand. This has never failed me. Looking at silver in this perspective tells me the precious metal could be setting up for a massive price jump.
Silver Demand Remains Extreme at Mints Around the World
So far this year, the U.S. Mint (up until November 19) sold over 42.9 million ounces of silver in American Eagle coins. In the first 11 months of 2014, the U.S. Mint sold 41.54 million ounces of silver. (Source: U.S. Mint, last accessed November 19, 2015.) With more than a month left in the year, don’t be surprised if silver sales at the U.S. Mint are much higher in 2015 than in 2014—which, by the way, was a record year for silver sales at more than 44 million ounces sold.
The Royal Canadian Mint is showing solid demand as well. In the second quarter of fiscal 2015, the Mint sold 15.7 million ounces of silver in Maple Leaf coins, up two percent from the same period a year ago. (Source: Royal Canadian Mint, last accessed November 19, 2015.)
And if we look at bullion dealers, the premiums they are demanding on silver suggest an outright shortage of the precious metal. I wrote about this not too long ago in these pages. (Read “Gold and Silver: Why a 2009-Like Price Surge Is Ahead.”)
This all suggests a significant amount of buying activity for silver.
Silver also has an industrial use. I know many have been arguing that silver prices and demand for silver will decline because of the global economic slowdown, especially in China. My argument is that the investment demand for this precious metal in the form of silver coins and bars could easily offset industrial demand.
Silver Producers Struggling, Production Plummeting
On the supply side of the silver equation, supply is contracting as lower silver prices have pushed silver miners to take mines off-line where silver production at US$14.00 an ounce is not economically feasible. Exploration budgets have also been slashed.
Silver mine output in Canada is in decline, too. In the first nine months of 2015, silver mines in Canada produced 285,953 kilograms of silver. In the same period a year ago, this number was 374,184 kilograms of silver. (Source: Natural Resources Canada, last accessed November 19, 2015.) Canada, one of the world’s largest producers of silver, has seen its production of silver decline 31% year-over-year.
What’s Ahead for Silver Prices?
A silver price target of $50.00 an ounce may sound too “out there” when the current price is close to $14.00, but we must remember these three important factors: demand for silver is strong, supply of silver is contracting, and silver is desperately out of favor with investors—the perfect catalyst for higher silver prices.