Worldwide demand, industrial uses and economic uncertainties have sparked an interest in precious metals during the past 10 years. In 2004, silver was trading as low as $5 an ounce but proceeded to climb over 900 percent, which created excitement amongst investors.
Since May of 2011 though, the big picture for precious metals has been in a steady downtrend. Investors during those 28 months have watched prices slide from near $50 to a low in the $18 range. However, a move from the low in June of 2013 and subsequent spike to $25 has excited silver investors again and may indicate that a bottom has been set. What’s the current status of silver investing in 2013 and what possibilities are on its horizon?
Silver Equity Investing Money Flow and Volume
The stock market provides a number of ways to invest in silver mining companies or track the spot price of silver. Exchange traded funds have become a popular way to invest in the precious metal markets. ETFs offer diversification or leverage if an investor wants to attain more risk. A few of these investment vehicles are actually backed up by physical metals instead of company sales. The iShares Silver Trust (SLV) is one of those ETFs. Each share in the ETF is equivalent to one ounce of silver and can be redeemed for physical silver if an investor chooses.
In August of 2013, silver futures saw an increase of 20 percent, which made the 6 percent climb in gold futures look paltry. At the same time, investors pulled out their pocketbooks and parked cash in silver related equities. The iShares Silver Trust captured an inflow of $88.2 million according to statistics from IndexUniverse. Also since August, volume activity in VelocityShares 3X Long Silver ETN (USLV) has increased. These numbers are indicative of enthusiasm in the sector and are possible signs of a bottom.
Physical Silver Coins Are Being Bought
Silver Eagles are being gobbled up in larger quantities compared to sales from last year. As of September 2013, 34 million of the United States Mint produced bullion coins have been purchased by investors. This is close to the final tally of 33,742,500 in 2012. What’s sparking this higher interest in silver, and why are investors choosing this precious metal over its gold counterpart? The outperformance may be occurring due to the difference in spot price, psychology and uses for each metal.
Silver Eagle bullion coins are available from dealers at a price of spot silver plus a small premium of around $2. This makes them much more affordable than gold for investors that use dollar cost averaging to build wealth. Purchasing a few coins that cost around $25 per ounce is much easier to do than forking out $1,400 for an American Gold Eagle. In fact, United States Mint sales statistics show that the ratio of Silver Eagle one ounce coins being sold is increasing and far outpacing the one ounce Gold Eagle. In July of 2013, the ratio of silver ounces to gold ounces sold was 87 to 1. This statistic has increased by over 300 percent with a ratio of 315 to 1 in August.
Worldwide Demand Continues to Flourish
Investing in precious metals is not confined to the United States though. In the country of India, the demand for precious metals has gone through the roof. With the rupee trading at record lows, people are purchasing large amounts of gold and silver. In fact, the government has imposed a number of tariffs in an attempt to curb the demand of gold by its citizens. In 2012, 860 tons of gold were imported into the country, which makes India the largest importer of this precious metal. In that same year, India imported 1,900 metric tons of silver. Fast-forward to September of 2013 and statistics indicate that silver imports have already surged to around 3,000 metric tons.
The solution to curb gold imports by Indian citizens has actually increased the appetite for silver in the country. Instead of paying high taxes on imposed tariffs, citizens are turning to silver and using it in jewelry. Demand for silver jewelry is expected to grow by 20 percent this year which could keep silver imports flowing.
Almost half of the worldwide demand for silver is due to industrial needs. The metal is used in electronics and solar power applications. Solar panels require about 20 grams of silver which is the material used to conduct electricity in each panel. China is a major manufacturer of both electronics and solar panel technology and is fueling the demand for silver. In fact, China is the second largest user of silver in the world.
Long Term Trend Changes May Have Started
Large investment firms are also changing their views and identifying chart patterns that may indicate the bear market for precious metals may be close to over. Bank of America recently changed their bearish view on silver and took off their short position. The Federal Reserve had decided to keep their current monetary policy in effect, and this created a surge in gold and silver futures. Bank of America noted the breakdown in the United States dollar and bullish candlestick formations that had been formed. They have stepped to the sidelines and decided to reassess the situation before making a recommendation for the metal.
The long-term trend line of spot silver has still not been breached, but it is getting closer every day. By the end of 2013, the price of silver should reach that trend line and change the technical dynamics. Once over the long-term trend line, the price of silver passes an area of resistance and sets the white metal up for short-term objectives. This doesn’t ensure an escalation in price, but it takes away a technical barrier that is currently in place.
A Combination of Price and Demand
Supply, demand and the technical picture of spot silver will all determine the outcome for silver investing in 2013. Diversifying a portfolio with a portion of hard assets or precious metal related equities is a prudent way to balance risk. Each investor must assess their own portfolio goals and decide if silver investing is the right choice for them.