How will less mfg affect silver price in a major crash??

Assume there is a MAJOR economic crash as predicted by a lot of the folks who advocate buying silver due to its' "great potential for growth" due to limited supply as compared to gold & industrial uses for silver. How will less manufacturing affect silver price in a major crash?? Will it still have "room to grow"??

 

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I was always curious if this was the case, why didn't silver reach the higher levels 5 or 6 years ago when the economy was portrayed as being at a peak and industrial use should have been stretching the demand? Maybe someone not affiliated with the silver and silver mining industry will some day release actual supply and demand numbers, but most of the positive ( with !!!!!) reports are from them. Remember how positive the bank reports ( from the banking industry) were before the housing and economic financial crash.

 

We already had the worst economic crash since the Great Depression, silver skyrocketed, and now the economy is recovering (albeit slowly). What happens to PM prices when the economy is fully recovered?

 

I'm not an industry insider, but 5 or 6 years ago there were large draw-downs in silver inventories to fill the gap between production and consumption. When economic activity recovers, this will happen again until the available inventories are depleted. Then, the price will have to rise to bring more metal out of hiding. Ted Butler has written a series of articles explaining how huge concentrated short positions in the silver futures market kept the price from rising even more than it did during the inventory draw-downs, but I have no way to know if his analysis is accurate, although it fits what happened in reality.

To answer the OP, I think silver would go down in a MAJOR economic crash [which presumably means one greater than what we just had] unless there is significant inflation to attract precious metal investors seeking a safe haven. It isn't easy to predict, but that is my expectation.

 

Seems like we have already seen a major crash, fairly long recovery to boot. How did silver do? It is down some what.
Lets ramp that crash up a bit....It would seem you would see a parallel movement down. Working in an industry that uses silver has taught me that silver/iron is like food. If we are poor, we will eat less.....but we gotta eat.

The thing that scares me is not the mfg downturn in silver usage but the weird and nebulous paper side of silver. It seems to me that they have the bridle for this beast. Us collectors are a fairly static and calm sort, even buying into weakness....but they play different with the short game and leverage'n.

The first time I relized there was a new sherif in town is a few years ago when silver was around $15.....and you could not beg an ounce off of anyone, even online. Ebay had a $4 premium...what does that tell you. Told me that the spot price could be played with by someone and it was not the silver using industries.

Would love to hear your thoughts.

 

xtronic,

What you say is true, but in the long run physical supply and demand factors will win out over paper games. As we speak, the CFTC is discussion position limits on futures contracts for a variety of commodities, including silver.

 

I agree that the financial markets are not true barometers of physical pricing. They are not liquid enough, and too much leverage. I would prefer changes to the rules of the market, and I believe the Fed is looking into it.

Silver is a weird animal versus gold, not as much international support for bullion, no demand from central banks for reserves, but much greater industrial demand and lower percentages of inventories. I would argue gold is the weird animal and silver is actually more normal, more akin to other industrial metals like copper and nickel.

Of course I do not know what will happen with an economic recovery, but I would advance one thought. Do not think in terms of only the US economy, or just the US and Europe. PM's are truly international, so demand and production, in conjunction with worldwide reserves, need to be look at and considered. I would think silver would increase with a healthier economy like copper and nickel, while gold could wilt if people feel better that the sky isn't falling and do not feel the urge to buy more for uncertainty and central banks stop purchasing more for reserves.

 

I don't know about this purported shortage of silver - I've been hearing that since the 1970's. As for industrial uses, are there replacements for silver should the price become too high? Back in the 1970's one of the largest industrial uses of silver was in photo processing, but that's all evaporated with the advent of digital photography.

 

Wow, great point. My view was a too much from my personal experiences to see that. I mean I know it is not gold but my mind keeps forgetting that silver is primarily a consumed/usage material.....it is just so pretty!

 

Since the 70's the enormous domestic and international stockpiles of silver have largely been depleted to fill the gap between production and consumption. Now that the price has risen, my understanding is that production and consumption are pretty much in line with each other. The impact of photo processing was always overstated since the vast majority of the silver is recovered and recycled in that process. That is why digital photography has had nearly no effect on silver prices. Silver has certain physical properties that make it the most suitable metal for some purposes [e.g., it is the best electrical conductor and the most reflective metal]. So while there may be substitutes, silver will be preferred unless and until the price rises enormously or sufficient quantities are not available.

 

We just endured, survived, and many ways excelled through the worst economic mess of our lifetimes.

How did silver do ?

It held it's value pretty well.

US manufacturing output is up. I see no reason why swings in industrial output will cause a significant drop in silver price.

I will say that techno-advances can affect commodities quite a bit. For instance, digital photography has surely dropped the demand for silver in filmmaking. And yet, the silver price remains strong, as there are other factors at play.

 

Well put Cloud. The one worry about silver I would always have is the fact that a sizable amount of the large stockpiles have been converted into coins, ASE, rounds, etc. They haven't been consumed per se. I think that would be an overhang to the market, preventing sizable price appreciations. If the economy recovers, fewer people will buy silver for its safety. Production demand picks up, and its more than mine production, but there is always these other sources to be melted. Just saying it will mute any true demand increases. Also, these higher prices are driving increased mine operations. I know of a number of old mines reopened, and new mines dug due to high metal prices. Once in place mines don't shut down easily, so this increased supply could also suppress prices, especially for gold.

 

IOW, let's assume the propaganda artists with a sales ax to grind aren't lying through their teeth.

Then, let's assume pigs fly and the moon is made of green cheese.

I get this fear-mongering nonsense all the time in e-mail and postal. I call 'em up and make certain they don't send me this stuff ever again.

 

A siginificant portion of silver production comes from sources where silver is not the primary target ore. Demand for copper, zinc, gold, nickel and etc heavily impact silver supply. A significant slow down mining of these industrial metals could be enough to keep silver supply and demand in balance without much impact on output of primary silver mines.

 

Investment demand is always the wildcard with silver. But it could have the same effect as additional consumption and not really act as an overhang. If prices start moving higher again to $25 or $30 and beyond, more people may want to buy silver coins than sell them, creating a feedback loop to drive the price up even more. We already know that ASEs and silver rounds will not be melted with silver at $20 because we've already been there and there was no great melt. How high silver prices have to go before people start melting their collections is anybody's guess.

 

Yep, very true, except just like PM mines, the high prices of the last few years are spurring additional mine openings here as well. If I remember right, silver likes metals in its own group the most, and gold mines produce the most byproduct silver per ton, followed by copper. Works both ways.

Thanks a lot for bringing that up. I had forgot to talk about it.

 

not just the price but the premium. No one melts them now since they are worth much more in their current form. However, if consumer demand drops so therefor the premium drops, there will be a better case for melting them, especially any dinged up. In 1980 the premium for coins was steadily deteriorating until it ended up being a negative premium for bags. Depends on what is driving up the market, collectors, industry, or a couple of rednecks from KC.