Silver Layaway
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Silver Article on Reuters
I don't usually include other people's writing in my newsletters, but I thought this article was an especially good summary.
Atul PrakashLONDON, April 11 (Reuters) - If you plan to sell the family silver lured by the highest prices for decades, experts say don't rush. It could get even better.
Silver, poor man's gold, has potential to race even higher in the coming months, thanks to depleting inventories, slow mining and growing demand.
Spot silver hit a new 23-year high at $13.01 an ounce on Tuesday. It has jumped 83 percent in a year and tripled in the past four years, largely surpassing even the most bullish forecast for prices in 2006 of $9.77 from a Reuters poll at the start of the year.
Some even say the metal may surge to $20 this year, if funds and investors keep on pumping money into commodities.
Fundamentals have been supportive, with the market deficit seen widening after the launch of a proposed investment fund, backed by physical metal and to be traded on a stock exchange. "Investors see that deficit and are saying: 'Hang on a minute, silver is cheap.' said Peter Hillyard, head of metals sales at ANZ Investment Bank.
Stocks in the silver market have been estimated at around one year of consumption, against about 40 years on the gold market.
Mine supply is expected to rise by just 0.5 percent next year to 20,100 tonnes from 2006, while total demand is seen rising by 1.5 percent to 27,400 tonnes. Industrial demand is likely to grow much faster at around five percent in 2007.
Silver prices, which generally follow gold, have risen faster in recent weeks and moved independently, helped by their own fundamentals. The gold-silver ratio, or the amount of silver needed to buy one ounce of gold, has fallen to 48:1, against 80:1 in 2003.
NEW APPLICATIONSSilver consumption has been growing in electronics, pharmaceuticals, fuel cells and other energy applications. High prices have also attracted people to invest in bars and coins.
"The demand side of things have changed dramatically. Every piece of electronics you see has a few ounces of silver," said Phillips S. Baker, Jr, president and chief executive officer of Hecla Mining Company.
News of an imminent launch of an exchange-traded fund (ETF), which analysts say has the potential to attract 4,000 tonnes or 20 percent of annual output, lifted prices to new highs.
"We believe that the silver market will be materially distorted by the launch of the ETF for perhaps the next five years," said John Reade, analyst at UBS Investment Bank.
He said silver prices might rise to $16 in three months. "A large enough withdrawal of silver from the market could have a severe impact on liquidity," said Michael Widmer, analyst at Macquarie Bank.
The photographic industry, accounting for about one-fifth of silver demand, witnessed a drop in consumption in the past years but the impact, to a large extent, has been nullified by growing usage in other applications, they say.
SUPPLY CONSTRAINTSSilver mining was neglected in the past two decades due to low prices, but the current bull run has attracted many players. The metal's positive outlook means better profitability of new projects and easier capital raising.
"Obviously, right now the commodities markets are very hot. London is a very pleasant surprise, very hot market for financing right now," said Robert S. Tyson, vice president at Minco Silver Corporation, a China-focused exploration company.
Tyson was in London last week to attend a silver conference. But industry executives said any significant supply would not come for at least a decade and until that time, the market has to rely on above-ground stocks.
"The lead time to new production typically is several years. We may see elevated commodity prices, including silver, for several years," said Abraham Drost, president of exploration firm Sabina Silver Corporation.
About two-thirds of silver output comes as a by-product in production of other metals such as copper and gold, limiting any sharp rise in supply in the coming years.
"The supply side is relatively inelastic. There are other copper and base metals mines coming on board that have silver values in them, but they can't dramatically increase their production to take advantage of silver revenues," said U.S.-based Peter K.M. Meagaw, president of mining consultancy firm, IMDEX.
"That leaves a relatively few highly productive primary silver producers to fill the gap."
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