The short term fundamentals for silver, which has slumped 59% over the past five years, don’t look particularly great. It has become a troublesome investment material since the decline of the photographic industry. However in the longer term, supply and demand fundamentals of the metal look to be finally improving. The potential upside for investors is significant, as multiple industries find use for gold’s erratic little sister. Meanwhile, supply looks set to dry up due to the current market conditions. Explore the silver situation further. Check out these five reasons silver looks like an attractive option for long term investment.
1. Consumption exceeds mining output
For years now, amounts of silver mined annually worldwide have been lower than the amounts consumed or bought for investment purposes. The gap is being filled by vendors who are willing to sell from existing inventories of the metal. The total available inventory is already low and will tighten up further with time. Additionally, demand for silver is growing in excess of mining production growth. This imbalance must eventually push prices higher.
2. Solar power is opening up a whole new level of demand
As solar power has become more of a ‘thing,’ demand for silver in that sector has sky rocketed. Silver is required as a key component of photovoltaic cells, used in the creation of solar power. Back in 2000, about a million ounces of silver was used for these cells. Yet by 2013, that figure had increased to 50 million ounces, amounting to about five percent of of global silver supply. Many nations are now beginning to implement renewable energy targets that will see solar power usage increase further. China recently quadrupled solar energy targets and is now aiming to generate 200 gigawatts of electricity from solar sources by 2020. So if you see a future in solar power, it’s a good indicator silver will yield well in the long term.
3. Silver consumption is increasing in other areas
Silver consumption has also been steadily growing along with the electrical, mobile and computer sectors. Which of course, are sectors that don’t look like slowing down anytime soon. In addition, silver’s use in the biotech, medical and even clothing fields is also on the rise, as new discoveries are made. For instance, silver is now being investigated for its ability to combat infection, bacteria, fungi and even nasty odours
4. Primary silver producers are struggling to stay online
Silver demand currently sits at around a billion ounces per annum. Eighty per cent of that demand is from mining, the rest from scrap. The current slump in silver prices however means many primary silver producers are now struggling to make a buck. Increasingly, operations are being scaled back with some mines going offline, as silver mining companies announce cut backs in production. An example is Endeavour Silver Corp. (TSX:EDV) which announced a 25 percent cut back in production for 2016. Investment in the silver exploration projects has all but disappeared.
5. ‘Scrap’ silver production is also decreasing
Pure silver production aside, it’s important to remember that 70 percent of the world’s silver is produced as a by-product of mining other metals, including gold, copper, zinc and lead. Investment in the mining of these metals is also on the decline.
Tips provided by goldbullionaustralia.com.au, leading traders in gold and silver bullion.