After the big move in 2011 was summarily ‘dealt with’, which sent the precious metal’s price down from a peak of $46.82 on April 24th down to a low of $26.05 by September 25th, many silver bulls have found themselves reviewing their perhaps picture of the metal’s future prospects.
Reduced concerns about another round of quantitative easing by the U.S. Federal Reserve Bank have also diminished silver’s luster for some would-be mainstream investors, especially in the short term.
Nevertheless, a strong bullish case can still be made for continuing to hold the white metal over a longer term period, which would encompass the next three to five years, on a relatively straightforward basis of how supply and demand factors should ultimately impact silver’s price. These factors will be discussed in greater detail below.
Demand for Silver Continues to Arise From Four Main Sources
The primary attractions of a bullish view on silver are that the metal has four key sources of demand. The first demand source is related to silver’s many industrial uses in which the metal is largely consumed, and which includes the not yet efficiently, but rapidly growing solar power industry. Two additional demand sources in which silver is largely conserved include those related to the production of jewelry and coins.
Another key demand source for silver is as an asset to be held for investment purposes. Demand for silver as an investment asset tends to increase during inflationary periods, as well as during economically challenging times as most developed nations are currently experiencing and are likely to continue to experience for several years to come.
Production of Silver is Also Rising, but at Greater Cost From Dwindling Resources
Adding to the bullish case for silver is the fact that, while the mining production of silver has grown in recent years to accommodate the growing demand for the metal, miners are increasingly suffering from greater costs of producing silver metal from lower grades of ore and poorer sources.
Basically, despite miners having the benefit of improved technology, the natural resources from which silver can be extracted are ultimately limited to the quantity present in the Earth’s crust.
This combination of factors means that as the demand for silver continues to grow as the human population and industrial applications expands, while the supply of silver is constrained by both the physical quantity of the natural metallic resource that can be mined, as well as by the increasing cost of doing so.
The most likely scenario indicates a substantial rise in the price of silver over the coming years, which should ultimately be favorable for long term silver investors.
Dr. Jeffrey Lewis