Supply and Demand states that Silver must rise in the long term?

So many questions with silver bullion investing. So many headaches as well. Here are my questions.

1. If silver is consumed as an industrial commodity won't the value of silver increase as supply dwindles? (We have must less silver on this planet than 30 years ago?)

2. How does the price of silver correlate with oil prices? One might assume that the sheer amount of cost in drilling/mining silver would cause the price of silver to increase. How about the sheer amount of dollars that are taken out of circulation (held in foreign bank accounts) when the price of oil rises? How might this affect silver?

3. Is Silver a PM or an industrial commodity, or both?

4. Does Chinese Inflation have an effect on silver prices, or is this mainly with Gold?

5. What is meant by the statement: "gold is money, whereas silver is not?"

Thank You

 

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1. There still plenty of silver left in the ground (production of silver has kept pace with increase in demand). Also because silver is industrial metal there in lies silver's biggest problem, lets say things get worse and US defaults or faces depression like situation resulting in a global economic slow down. Suppliers will cut off their orders and start selling off their stockpiles, we could easily see a scenario were Silver prices be stagnating while Gold could be soaring due to currency devaluation.

2. Silver is mined along with other base metals currently costs about $6-8 dollars to mine it. Yes oil prices will increase mining costs but i don't think the correlation is 1:1 since large portion of the $$ also goes to heavy equipment, taxes and labor.

3. Hard to say it really depends on which segment is impacting Silvers' price point, as of right know it is PM because it raising as a result of being cheaper investment alt to gold.

4. Not sure what Chinese inflation has to do with Silver prices?

5. I guess they mean historically gold coins were used as currency not silver.

 

1. You would think so, but since paper contracts determine the price of the physical market, and dwarf the supply and demand of the physical metal there's no reason that the value has to increase until the breaking point.

2. I don't see much correlation other than that as oil rises so does everything else due to transportation, machinery, etc. I'm not so sure dollars spent on oil are taken out of circulation. Most US dollars are held outside the US as it is. The Fed has to destroy the dollars in the electronic money supply, or whether it's the Fed or the Treasury that deals with paper dollars they have to pull those off the market and either hide them away or destroy them.

3. It certainly used to be a monetary metal, but since 1964 it really hasn't been. I still consider it to be since it was for thousands of years and this little blip on the radar the last generation or so is an anomaly IMO. So I say both.

4. All inflation has an effect on all commodities. The more money there is, the more each finite resource costs since money is a representation of goods and services. More money on the market means more demand and also therefore less supply.

5. I haven't heard that statement before. Both gold and silver have been money for most of recorded human history. Now if you mean JP Morgan's statement of "Gold is money, and nothing else." that can be interpreted one of two ways. Either gold is money, and nothing else is money, OR gold is money, and gold is not anything else but money. I defer to the latter.

 

Mining production only keeps pace with (exceeds) industrial demand. If you factor in investment and jewelry demand, yearly mining supply has never met the total yearly demand in our lifetime. That is why the available supply is at its lowest level in 7 centuries.

The other thing is that silver behaves more as a monetary metal than an industrial metal. The industrial usage hasn't even factored into the pricing otherwise people would be concerned that there's less than 500 million oz of refined silver on the open market today. Silver prices have gone this high because of money printing. That's why I contend it is a monetary metal. Ron Paul held up a silver coin to Bernanke yesterday even though he is a gold bug.

 

[video=youtube;7sFLcLD1vPM]http://www.youtube.com/watch?v=7sFLcLD1vPM[/video]

 

Answers to your questions:

1. Silver was used for photography. Photography has pretty much disappeared with everyone having digital cameras now. I don't think industrial use drives silver prices.
2. Silver and oil have no direct relationship. There is a $ <-> Au <-> Oil triad, but silver isn't involved no more than any other metal except for gold.
3. Both. In reality PM really doesn't mean anything.
4. I don't understand Chinese inflation so I can't answer the question.
5. Gold is defined as "lawful money" in most governments including the USA. Because it holds this designation, the Federal Reserve holds it as an asset on it's balance sheet to cover the liability of the "base money supply". At one time silver was officially defined in terms of gold but this no longer exists in the USA or anywhere else that I can think of for now. From a practical standpoint it doesn't make any difference to the individual since neither substance can be used as currency. However this difference doe mean that pricing is driven by different factors.

 

Even though silver use in photography has declined rapidly, the overall industrial demand and consumption is still increasing:

http://www.silverinstitute.org/site/supply-demand/

Electronics are using quite a bit of silver and I believe solar panels use silver too.

 

Could you expand on the relationship of this triad and how that works? I haven't heard of this, sounds intriguing.

 

My opinion is all PM and many other materials are related to oil prices since the incremental costs of producing them is tied to it. Think of them much like stored oil, much like food can be thought of as stored oil and water. The major problem with silver is that much of the production is as a byproduct of other metal production. This production will continue regardless of silver prices as long as the primary metal is profitable. The major example is copper. As long as copper is profitable, the silver will always be produced regardless of market price. This can cause some extreme volatility in pricing, as this market has seen in the past.

What does this mean for silver pricing? Not sure, except in general higher oil should lead to higher monetary PM prices all around.

 

I said that I don't think industrial demand drives silver pricing. Your own chart shows that industrial demand remains unchanged since 2007 or earlier.

 

I've written about it before, but most people on this forum have no interest in such things. They simply believe that silver has to go up, period, and when it doesn't, they dismiss it with nonsense and start taking tokes on the hopium bong again. Posting anything like this, leads to a bunch of a detractors to tell you why you are either wrong or that you have a bunch of character flaws for even thinking such things.

The post above where the poor fellow who didn't read his chart but took the time to post it as proof that I was wrong, yet couldn't be bothered to address the OP's question is an good example. Or, I had no idea that when I started the simple topic about negative silver lease rates that it would lead to the huge dump truck load of whale sh-- that it did. That one went way over the top including war posts and I just don't care to bother with it again. Absolute silence there now because I was proved right.

I tire of it. Frankly there are better places I go to for such a discussions. However if you wish to look into it further, start with the collapse of Bretton Woods in 1971 and the creation of the petrodollar (now unspoken) in 1973. Both are highly relevant in 2012.

 

You know fatima, if you are interested in swaying people to your point of view you'd probably be more effective if you cut the snark out of your posts. If I understand correctly, this isn't a triad so much as a chain. Oil impacts the dollar, the dollar impacts gold. I'm not entirely clear on the relationship between oil and the dollar on a value scale, just that nations being forced to buy and sell oil with the dollar exports our dollar inflation to those nations thus preventing our own inflation from rising nearly as quickly. I'm not clear what the relationship is though if oil were to rise or fall, how does that impact the value of the dollar?

Regarding the Silver Institute chart, industrial demand was the 2nd highest in 2010 of all the years on it. Sure it's not taking off or anything, but it is growing from a broad perspective. Investment demand is indeed growing though. The other thing is that this chart doesn't take into account 2011. I am very interested in those numbers, and solar industridal demand is projected to grow by leaps and bounds in the coming years. As I've noted elsewhere, mining supply does not meet demand. There is approx. 200 million oz of silver pulled from available scrap every year. That means we have at the very most 4-5 years before that runs out, and it could even be as soon as 2013. Those numbers are just difficult to nail down exact figures for.

 

I agree. In fact, thats more than your opinion, it's a hard fact. Most people just don't realize it because when oil prices rise, everything goes up in cost. Everything from gas to tv's to food. It's not so much in the production of the goods as it is the movement of them that effects price. But, at the same time, the increase in goods usually won't show up for three years after the price of oil has risen, as most transportation industries buy fuels three or more years in advance on current non-adjustable levels. So oil might double in price tomorrow, but you and I won't see most things rise along with it for years, which by that time oil might have plummeted and we're left wondering why they're gouging us, which they're not. The waves oil prices generate are very slow, but they're there.
Guy

 

Energy is the lifeblood of industrialized nations. When oil is the primary source of energy, changes in the cost of oil will always have an effect (time-offset as Guy described) on the cost of production and consumption of everything, silver being just one commodity of many. While the US has steadily been increasing its GDP-per-barrel efficiency since the 70s, and we're producing more oil now and importing a large percentage less than since the mid-2000s, oil is a global good and demand is outpacing efficiency improvements and production everywhere.

It's also entirely possible that silver's industrial usage could be totally supplanted by a new material, or simply that the use case for silver diminishes as it has for photography. There's no reason why silver "must" rise in the long term.

 

I would simply point out that solar is still extremely dependent on government subsidies to make it worthwhile, money that I simply do not see many governments as having nowadays. I also would be curious as to how silver usage in that application is doing. The largest manufacturer in the US of them went bankrupt a year ago. Also, while I agree silver is the best metal for this, some alloys are fairly close to it in efficiency and so therefor it is a price conscious usage. At a certain price its just too expensive, just like silver wires for your home are too expensive today, even though they are theoretically the best metal for the application.

Regarding pulling metal from scrap, look back. It has been that way for a long time. This "scrap" was formerly "demand", and I find it healthy that it gets recycled. I am just afraid sir you read maybe too many doomsday silver websites showing people why it HAS to go up. The same guys had literature and books in the 80's and early 90's proving how gold HAD to go up. They both do eventually, but when is the key.

Just my opinions and thoughts on your own. Feel free of course to disagree.

Chris

 

please explain that one. last i checked, the denarius was silver, the drachma was silver, the dollar was silver originally, the reale was silver, the penny (english) was silver originally, the thaler was silver... and these were the units that were used in everyday trade/commerce.

 

The average use of silver in a solar panel is about .10 gram per watt, or 20 grams per typical 200 watt panel. However, as with any limiting supply, advances can decrease it use.

 

Chris I respect your opinion and value what you have to say as being knowledgeable on the subject and having been around the block, but I do disagree in this case.

Governments have unlimited amounts of money. They print it constantly. The only way that won't be the case is if the monetary system itself fails, and if that happens then we'll be bartering with silver anyway. Even if they didn't, solar demand should rise regardless as there are more and more startup companies providing this technology in more affordable ways. Even if solar demand didn't increase at all, technological demand from other devices is more than enough to maintain current levels even in the absence of photography demand as well.

Regarding the scrap, I would agree it's healthy that it is being recycled. My point in this regard is that without the scrap demand would not be met by today's supply. I read more sites than I care to name. Maybe some are doomsday sites, but I know that many aren't, and are merely pointing out the fundamentals of silver which is all that I do. I am more than happy to discuss the details of my reasoning which are independent of who I source since there are numerous sources providing the same information.

 

I'm not really sure how it's considered an advancement to use a less reflective metal for a function that is dependent upon the ability to reflect and refract light. Cheaper maybe.

 

I am by no means as informed as most of you participating in this conversation but I do like to read and love the way you guys politic.

I have a question, actually a thought I have had for a while...If silver does have so many industrial uses, would'nt such powerful goverment reaping the benefits from said uses do anything to keep prices as low as possible (manipulation, or by other means..)? I also would ask, do you see gas prices being 30 dollars a gallon, or would governments prevent that from happening?

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