It’s no secret silver prices are down and out. But play close attention to the basic fundamentals of supply and demand, and you’ll discover the gray metal could be setting up investors for massive rewards.
India Increases Silver Imports 48% Year-Over-Year
As it stands, we are seeing a new major buyer emerge in the silver market. India, the country with an appetite for gold, is buying a significant amount of the “other” precious metal.
In August, $363.41 million worth of silver was imported into India. Last August, only $245.16 million worth of silver was imported into India. (Source: Indian Ministry of Commerce & Industry, last accessed September 16, 2015.) This represents a year-over-year increase of 48%!
Demand for silver elsewhere in the global economy is solid, too.
So far this year, the U.S. Mint has already sold more than 34.3 million ounces of silver in American Eagle coins. (Source: U.S. Mint, last accessed September 16, 2015.) In the first nine months of 2014, the U.S. Mint sold 32.33 million ounces of silver in American Eagle coins. So, demand at the Mint is running roughly six percent higher this year than last year. But what is important to note here: back in July, the Mint halted its silver coin sales because it was sold out. Hence, this year’s sales numbers are distorted.
Silver Supply Side Getting Crushed
When looking at the supply side, production is slumping.
Take Canada, one of the world’s major silver producers, for example. Year-to-date, silver mine production in Canada has declined by 20%. In the first seven months of 2014, silver production in Canada amounted to 287,857 kilograms. In the same period of 2015, this figure was 227,860 kilograms. (Source: Natural Resources Canada, last accessed September 16, 2015.)
As silver prices started to fall from their peak in 2011, major silver producers started cutting back on their exploration and development budgets. I predicted this would happen simply because, as silver prices fell, mines that produced silver at over US$15.00 an ounce would need to be closed so they were not operating at a loss. Thus, a lot of production was taken off the table.
Where Are Silver Prices Headed Next?
In respect to silver prices, don’t be too concerned about what happens on a daily basis. Pay attention to the fundamentals and have a long-term perspective.
Personally, I expect silver prices to outperform many asset classes in the years ahead—including gold. I say this because of the math. If silver moves 100% higher from current price levels, it only goes to $30.00 an ounce—and silver has traded at that price many times before. For gold to go up 100%, it has to move to $2,400 an ounce—a price it has never seen before.
The chart below plots an exchange-traded fund (ETF) that tracks silver miners. At the bottom of the chart, you will see silver prices plotted.
Chart courtesy of www.StockCharts.com
Companies that mine silver have seen their stock prices fall in price at twice the rate silver prices have fallen. From their highs in early 2015, silver miners are down about 40%, while the price of silver is down only 20%.
I see tremendous opportunity in the depressed prices of quality silver mining companies.