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Is physical silver a cheap purchase at $15 an oz? (Part 1 of 2)


Today is Sunday 27th March 2016 and we are asking the question is physical silver a cheap purchase at $15 an oz, especially as it’s fallen from a high of $50 during the past 5 years.

Well firstly you should ask yourself what is your time horizon?
If you said just 12 months, we would say do not waste your time buying physical, but perhaps paper trade it – because even if silver jumped $2 - $3 an oz you would still lose money based on buying and selling spreads and premiums.

If you said 10+ years then our view would be somewhat different – and this is why:

The Silver Institute has quoted in its February 2016 report “Global mine supply production is projected to fall in 2016 by as much as 5% year-on-year….. many analysts expect global silver mine production to fall through 2019 as primary silver production from more mature operations begins to drop”.

More than 50% of demand comes from industry. In fact in 2015, according to the Silver Institute industrial fabrication demand accounted for an estimated 54% of total physical silver demand.
Now here is the exciting part, it quotes “photovoltaics for solar energy is projected to rise in 2016 and surpass the 2011 peak of 75.8 million ounces”, primarily the result of solar panels which could account for as much as 13% of total silver demand in 2016 compared with 1.4% in 2006.

Some more good news: “Silver demand from ethylene oxide producers is expected to jump to over 10 million ounces this year – an increase of more than 25% compared with 2015”. The bulk of this demand is expected to come from China (which is one reason why we frequently state; watch what is happening in China).

Now if this is not enough good news for silver bulls, well even jewellery fabrication is expected to increase by 5% in 2016 – with the envisaged fall in demand in China being made up elsewhere.

So all of this is expected to lead to a widening of the deficit between supply and demand which should prove positive for prices. Yes? Well not quite, as the Silver Institute notes: “While such deficits do not necessarily influence prices in the near term, multiple years of annual deficits can begin to apply upward pressure to prices in subsequent periods.”

So all is looking good and hearty for silver. Is there anything we’ve forgotten? Oh yes Economic slowdown, Deflation and Negative Interest rates.

Please tune in to part 2 which will be published tomorrow.

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