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Why You Should Invest In The Silver Market

Quite simply Silver is in a bull market and has not seen any overly enthusiastic investment yet.  The price has risen sharply over the past few years, from $5 in 2002 to over $20 today. 
The history of Silver shows that it is money as well as Gold.  The big difference is that while Silver is money, it is also an industrial metal.  Did you know that in over 14 languages the word for “Silver” and “money” are the same?  You’ve all heard of the Gold standard but it actually replaced the Silver standard in the 1800’s.  Unlike Gold which most of the mined stock is still in existence Silver has been used up and is in relatively short supply. 

 In the table above from the World Silver Survey in 2007, supply and demand match, exactly.

New uses for Silver are being invented and applied every day.  The superior properties of Silver have been apparent in many applications for many years while new technologies are discovering Silver’s superior qualities.  Some industrial uses today include:

Batteries:
 Both rechargeable and disposable batteries are using Silver today.  Silver provides superior power to weight characteristics.  By weight Silver makes up 35% of most of these usually small batteries.  The Silver produces both higher voltages and a longer life in these types of batteries.  Watches, cameras, small electronic devices, power tools, and portable TV cameras are some products which use Silver in their batteries.

Bearings:
 Bearings electroplated with Silver provide greater strength and load carrying capacity.  Military and heavy duty applications where a no fail system is needed use these bearings.  Every time you step on a plane you are holding your life in Silvers hands.  Silver coats the bearings in jet engines and provides the lubricity to avoid a catastrophic failure in the event of a lubrication failure. 

Brazing and Soldering:
 Silver is replacing lead in solders to provide a leak proof and corrosion resistance joint.  Air-conditioning, refrigeration, power distribution electrical engineering, automobile and the aerospace industry use Silver brazing and soldering.  In plumbing the bactericidal properties of Silver is being touted more every day as a safer way to install plumbing in residential and commercial buildings.
In 2006, 47.7 million ounces of silver were used for brazing and soldering.

Catalysts:
 Roughly 700 tonnes of Silver are in continuous use throughout the world’s chemical industry.  Silver is essential to producing the two compounds the plastics industry needs to produce flexible plastics and hard plastic; ethylene and formaldehyde.  Imagine a world without plastics.
 Without Silver this US $300 billion industry would not exist!
 Silver is the only catalyst that will oxidize ethylene gas into ethylene oxide and worldwide production exceeds 14 million tonnes a year.  Being the building block of polyester textiles used in clothing computers, electronics, domestic appliances and Mylar tape (recording tape).  Also, 25% of ethylene oxide production goes to produce antifreeze for our cars.

Coins:
 In 2006 39.8 million ounces were produced as Silver coins.  Silver has been used as money as far back as 550 B.C. and continues to be sued to this day in some countries including Mexico.  Since Silver was more plentiful and of less value than Gold it served as a practical means of exchange.  Today most of the Silver produced is consumed in one form or another with only 64 million ounces per year set aside for investment purposes.  With such a small amount of produced Silver actually making it to market the price of Silver will see some spectacular gains when even a relatively small amount of Silver is sought for investment.

Electrical:
Silver is the best electrical conductor of any known material and it does not corrode.  Silver is used in conductors, switches, contacts and fuses.  Silver is used in virtually all electrical appliances.  Just the US market for electrical switches is roughly 2.7 billion per year

Photography:
 Although the digital age is reducing the amount of silver that is used in photographic purposes it will always remain a part of the demand structure because of its low costs and superior definition qualities.  In 2006 approximately 145.8 million ounces of Silver were used in photography.
 Silver is also used in x-rays.  From humans, animals, steam valves, ships, aircraft or truck axels Silver x-rays remain the surest way to find faults in a structure.

Medical Applications:
 While only in the last 200 years has Silver been documented as a bactericide Silver has been used throughout the ages in purification applications.  Silver vessels were used to keep water, wine milk and vinegar fresh and pure during long voyages.  Babies fed with a Silver spoon when young were even proven to have better health than others.
 Silver sulfadiazine is used by hospital for burn victims to prevent bacterial infections.  Also surgical gowns and other hospital apparel is incorporating a layer of fabric infused with silver particles to prevent microbial transmissions.  Research continues to discover new usues for the biocidal properties of Silver.

Jewellery and Silverware:
 Silver is the most reflective metal and enjoys a prominent role in jewellery manufacturing worldwide.  Although most Silver needs to be strengthened for use in cutlery bowls and other decorative items then called Sterling Silver (92.5% Silver, 7.5% Copper).  The demand for Silver in jewellery yearly is 165.8 million ounces and 59.1 million ounces for silverware representing a formidable component of total demand.

Mirrors and Coatings:
Being virtually 100% reflective after polishing Silver is at the forefront of high end mirrors and coatings on glass.  When coated on glass Silver will both reflect the suns heat in summer and maintain the heat inside in winter providing substantial cost savings to the user.  When used on prescription glasses Silver can reduce UV rays by at least 97%.

Solar Energy:
 Silver paste is used in 90% of all crystalline silicon photovoltaic cells which are the most common solar cell.  As the use of solar power increases so will the use of Silver.  Many buildings now are built with a Silver membrane which acts as a solar cell creating energy and heating or cooling much reducing the utility costs.  As this technology is proven over time more and more companies and families will insist on using this type of technology.

Water Purification:
 Perhaps the most important use of Silver is that of water purification.  Silver works as a bactericide and algaecide.  Silver is being used in hospitals homes and remote communities throughout the world in need of clean water.  Possibly the most pressing issue of today is clean water and the use of Silver in purifying water may be the solution.  Over half of the water purification systems sold in the U.S. every year employs Silver.  Silver purifies water of bacteria, chlorine, trihalomethanes, lead, particulates and odour.  Silver prevents the build-up of algae and bacteria in the filters.  New research shows Silver and oxygen catalyze to produce a powerful sanitizer virtually eliminating the need for the use of chlorine.

 It comes down to simple supply and demand fundamentals.  The long bear market for Gold and Silver has led to a lack of investment in discovering new silver mines worldwide and now that investment and industrial uses for Silver is skyrocketing the price has no choice but to go up.

 The Silver ETF was a huge success and is taking a large amount into their holdings preventing it from being used.  Although I am not a fan of the Gold and Silver ETF’s they are serving a purpose of creating great liquidity and demand.  As long as the Silver is held by the ETF and not confiscated in any way it will remain a very bullish factor going forward in Silver.

 In 2006 the supply and demand of silver matched at 911.8 million ounces. As demand increases for both investment and industrial application this figure will become skewed, needing more supply to meet the demand needs.  The only remedy for this will be higher prices.

 Exploration for Silver is definitely picking up but it takes from seven to ten years to bring a mine on stream.  Exploration was at just $2 Billion worldwide in 2002 and picked up steadily to over $5 Billion in 2005.  These figures are just a small portion of the total worldwide exploration budget being spent this year.  Many new companies are beginning to explore as they see this as a new frontier with a long and sustainable life.

 Recently the physical Silver and paper (futures) prices have begun to diverge.  While futures contracts can be manipulated without any actual Silver changing hands the physical market cannot.  Demand for Silver as an investment has recently picked up pace and there are stories of lack of physical Silver from dealers throughout the world.

 This divergence will continue and retail investment in Silver will become increasingly difficult to obtain.  Silver will be well over $100 an ounce and in my view closer to $200 an ounce by the time this bull market nears it’s end.  While difficult to obtain now, Silver will provide great returns but my money is in the Junior and Exploration Stocks who explore and mine for Silver either as a by-product or main produce. 

 I do not believe the world will fall apart and people will go back to the barter system using Silver as a medium of exchange again.  If I did I would certainly have most money in the physical metal but I believe a solution will be found to the geopolitical problems we face today.  I believe I will make the most money in small stocks.

 Bull to date the large producers have done much better than most of the Junior and Exploration Stocks but now is their time to shine.  In bull markets the big companies always move first and then it trickles down the pipeline to the smaller ones and as it does the returns increase in magnitude as the companies with small market capitalizations need only a small amount invested in them to move up 100% or even 1,000% in short order.