Gold and Silver – Falling Supplies with Inflation and Fiat Currency Concerns
This article details the dwindling supply of gold and silver in the mining and investor marketplace. The dwindling supplies of silver and gold coupled with fiat currency concerns and future inflation concerns will be major catalysts for exploding silver and gold prices. The price increases could start later in 2012 and will probably last for years to come.
The futures and currencies markets continue to show evidence of a major “de facto” assignment of gold as the world reserve currency. It is clear from the continue falling US dollar and troubled Euro that paper currencies are being trusted less and less by investors. Gold has been climbing relative to every currency for the last five years or more and it could be ready for an even bigger move. Fears are increasing concerning the inevitable inflation to come. And, many investors cannot forget the fiat currency specter of the past and are worried whether history will repeat itself.
And like gold, silver also has a monetary history, and it is acting in a similar way but just on a smaller scale – for now. Momentum Rider believes that silver probably offers an even better value proposition and a much higher upside than gold. If you look at some of the gold and silver ratios discussed later in this article, silver has a much better chance of getting a massive short squeeze in the market.
Gold and Silver Investor Supply Dwindling
The amount of gold and silver leftover for investors to buy is dwindling rapidly every year. That means that just like precious art, rare collectables, or any other popular shrinking supply investment, the prices will escalate very quickly when everyone realizes the supply is running out.
To get some perspective on the dwindling supply, in 2010 the world mined about 800 million ounces of silver and roughly 90 million ounces of gold. In addition, the amount of recycled silver from that year was about 220 million ounces and 55 million ounces for gold. So in one year, the total amount of gold mined and recycled was 145 million ounces and for silver it was approximately 1 billion ounces. The total amounts were about the same for 2011 and may even go down in 2012. As an aside, most of the mined silver supply comes from Mexico and Peru. It remains to be seen how stable and productive these two countries will be in the future for keeping the silver mined amount up. Any disruption in these two countries production would decrease the available supply significantly.
Examining the yearly demand side, 2011 saw non-investment demand for silver (industrial, silverware, jewelry, photographic, etc.) near 620 million ounces. That left about 380 million ounces for investor purchases. On the gold side, the non-investment use was about 15 million ounces so investors had 130 million ounces available. Looking at a yearly basis going forward and using current prices, the amount of silver to invest in is only a mere $12 billion dollars. The amount of gold to invest in every year is roughly $220 billion dollars.
Obviously, one must also consider the existing “investor owned supply” inventory of gold and silver as well. The most recent estimates have silver bullion at about 1.2 billion ounces and gold bullion near 2.2 billion ounces. Again, putting that into current dollar terms ($32/oz silver and $1700/oz gold), investors own silver bullion and coins worth 38 billion and gold bullion and jewelry worth 3.7 trillion dollars. That is the amount that could be recirculated at the right price from existing investor supply.
Key gold and silver ratios:
Silver to Gold Yearly Mine Production Ratio: 9 to 1 (see above)
Gold to Silver in the Ground Ratio (Economic/Mineable per USGS): 6 to 1
Physical Ratio of Silver to Gold Above Ground (CPM Group): 5 to 1
2011 Ratio of Investment Dollars Silver to Gold Ratio: 1 to 1
Current Gold to Silver Price Ratio: 52 to 1
Historically, in most of the 20th century, the Gold to Silver Price ratio was about 15 to 1. It is really only in the last 5 to 10 years that the ratio has increased dramatically in ranges from 35 to 1 up to 100 to 1. So looking at the other ratios above, it would seem reasonable that silver’s price would move up relative to gold quite a bit in the coming years. As an example, to simply get back to 30 to 1, silver would be priced at $60/oz if gold is priced near $1,800/oz.
If world government storage figures for silver and gold inventories are included, it is estimated that 60 million ounces of silver and about 1 billion ounces of gold are owned and stored by governments. And it should be noted that this amount is likely to grow going forward as many countries have been buying gold since 2009. And the governments, that sold over 3 billion ounces of silver between 1965 to 2000 are now mostly finished with silver sales. With only 60 million ounces of silver stored, they couldn’t affect the silver market pricing much anyway.
China, Asia, and India Could Try and Corner the Market over Time – The Hunt Brothers Part 2
Momentum Rider has no reason to believe that China, Asia, and India have any plans to collectively corner the market in silver or gold. However, they are massive speculators, investors, and consumers of both gold and silver right now. Without officially joining forces to corner the market, their collective buying power unleashed in the gold and silver market with the new planned exchanges could have the same end result. And the prices could end up doing what they did in the late 1970′s when the Hunt brothers tried to corner the silver market.
MR recommends that you start accumulating gold and silver in the form of ETFs, mining stocks, coins, jewelry, or even bars if you have a good way of buying and storing the actual metal. But please be careful with any company you buy gold and silver from and those companies that claim they will store it for you.
Another parabolic move in silver and gold prices similar to what happened in 2010 and 2011 is very probable and it could be even bigger this time around.
The simplest method is to simply buy the ETFs. Silver ETFS we like are SLV or SIVR and Gold is GLD or IAU. Start buying in small amounts right now and on any pullbacks before the big momentum move really kicks in. Watch for Momentum Rider’s frequent updates on gold and silver prices in blogs and in the MR Power Stock Newsletters.
To get our weekly TOP stock and ETF picks and detailed market commentary automatically sent to your email, enter your name and email address in the form below.
To find out more about why our subscription services continue to crush the market since we started in 2004, go to www.momentumrider.com.
No comments:
Post a Comment