Silver to win even if economy picks up
While much of silver's recent move has been attributed to concerns about the state of the global economy, a number of analysts expect silver's industrial uses to come strongly to the fore when the economy does recover
Posted: Tuesday , 05 Oct 2010
Silver is often viewed as a horse with two masters. On the one hand it is viewed as a monetary instrument and valued in the same way as gold, as an asset of last resort but, on the other hand it is viewed as an industrial metal.
In the recent past, with the advent of digital technology, one of the metal's main industrial uses - photographic film - declined significantly while at the same time people were beginning to focus more attention on its monetary attributes, especially once silver ETFs were introduced to investors.
Now, as silver continues to hit highs not seen for 30 years, it is the resurgent industrial uses for the metal that people are hoping will propel it to new highs.
Speaking to Mineweb last week, John Licata, chief investment officer for Blue Phoenix investments, said that currently, silver is much more of a leading indicator for economic health than copper is.
"There are just more uses to silver these days and those uses continue grow. You're talking about using silver in solar, increased uses in battery technology - we're very enthusiastic about going forward. There have been many more uses of silver in the medical world - in eyeglasses, in water purification - and it's still being used for jewellery although it's not as prominent in use in photography, it still is used in photography."
Independent silver expert and author of the Morgan Report, David Morgan agrees with Licata that Silver's industrial role has increased. Speaking to Mineweb last week, he said, "Silver's industrial use is about 54% of the market based upon the GFMS study that is printed for the Silver Institute. If you go back a decade it was roughly 35% - it's the biggest segment of the market and also the fastest growing although you could argue in the last couple of years that the investment demand has accelerated quite a bit as well.
"The industrialised information age requires silver more than it ever has in the past - anything electronic or electrical requires silver so I'm tending to agree that in a high-tech modern age where again a decade ago, the average per capita silver use in China is 1/70 the amount of the northern hemisphere of the United States or Canada. That ratio is narrowing - more and more Chinese are getting iPods, cell phones, flat screen TVs, laptop computers, using more electricity and getting all kinds of access to electronic goods, and because of that, it's knowing that 1/70 or moving it up more toward the western nations and that will put more and more demand on the silver market as it industrialises, as it moves into the information age. "
Indeed, in Licata's view, the current outlook for silver is extremely positive as the price is being supported by investment demand on the one side as concerns of further economic declines push people to the metal for its safe haven properties and, while on the other side, a pull back in these concerns would spell better economic growth in the West and an uptick in its industrial uses.
"I do think that there could be an aversion to commodities in general if rates get hiked up and again many of these things I'm discussing are things that I'm looking for in the back half of 2011, but if they happen sooner then I think that we can see some commodities, including silver, pull back though. But ...a pull back would be a very healthy thing because from an industrial perspective there's great upside so if the economy starts to turn around, that initial sell-off can turn out to be a reason for silver prices to continue that move towards $25.50."