The True Value of Silver

What is the true value of silver?  To find this out we need to look at some facts about silver.
Most of the silver produced on this planet is a by product of a primary mining operation.  That is to say there are very few silver only mines.  As pointed out in http://buy-silver.silverprice.org/2012/01/silver-a-future-road-yet-travelled.html.  There is a reason for this. There used to be many silver mines being worked and doubtless there are still many silver mines out there that are not being worked. With the price of silver being so low and the cost of mining so high, it is uneconomical to work a silver mine hence 80 percent of the silver extracted is a by product of other mining activities.
Despite this there is a heavy demand for silver both in the investment as well as the industrial fields yet the price does not match this and although the demand is there, the supply is still not commercially feasible.
On top of this we have the investment anomaly of   the ratio between the gold and the silver price being about 50 or so to 1.  This is an anomaly because the ratio of gold to silver in the earths crust is around 17:1, not 50:1 and these metals one would expect to be mined and available in the same ratio.  Yet we have a suppressed silver price well below its proper ratio with gold. These metals should be mined in about the same ratio as their availability and of course they are not, purely because the silver price is far below the costs required to mine it.
According to both the Silver Institute and World Gold Council, silver has only been mined at a ratio of around 7:1.  So silver is being mined at less than half the rate one would expect if the silver price reflected the true value of silver.
As Jeff Nielson in his article, ‘Silver Smoking Guns’ recently pointed out.
“What happened toward the end of the 20th century? Nothing much…other than the price of silver being driven down to a 600-year low (in real dollars)—and held there. At this point the realities of silver mining become just simple arithmetic.”
“If the price of copper was driven down (and held down) at a 600-year low, there would soon be few if any primary copper mines in the world; and the vast majority of copper would have to come as a by-product of other mining. If the price of nickel was driven down to a 600-year low, the world’s nickel mines would quickly be driven out of business. And so on.”
With silver 17 times more abundant than gold you would expect more silver being mined as a primary activity.  The fact that the silver price is extraordinarily low for the value both in investment as well as industrial terms only gives further credence to the manipulation of the silver price.
Which brings us to Mr. Butler’s revelations concerning the massive short positions held by essentially five banks.  These five banks hold 80 percent of the short positions and continue to do so year after year in the Comex, the world’s largest silver market. JP Morgan is the bank that holds the largest of these short positions which is, interestingly, bigger than the long position held by the Hunt brothers when they were charged with silver manipulation.  Something JP Morgan appears to have avoided so far.
So from an investor point of view, why should one invest in silver when there is so much manipulation and it appears that the silver price is never going to go up.  Fortunately it is not as bad as it seems.  
The answer is simple, as Jeff Nielson points out. “Low prices lead to high prices.”  When silver is severely manipulated leading to an inventory collapse, such as 2011 when the silver price was pushed down to 4 dollars an ounce. It drove the price to 50 dollars an ounce in the northern hemisphere spring of 2011.  We are approaching an inventory collapse as less silver is being mined and current stocks are being depleted as the price has been held down so it is economically unfeasible to mine silver. Then the demand is going to increase and industry as well as investors are going to start stock piling silver, even remove what actual silver is in the COMEX, and this will drive the price up again to closer the true value of silver.


Silver, Rock, Paper, Scissors



Silver Bars
Silver, rock, paper, scissors, the Silver Futures market is like a game for the very few making hugh profits from the silver price manipulation.  The silver futures being traded is far in excess of any actual silver and, compared to gold the silver long term price is going to be ’staggering’ according to Silver Analyst Ted Butler.
Silver is currently being bought up just as fast as it can be dug out of the ground yet cannot keep up with the ‘amount’ of silver futures being frantically traded on the COMEX. All this paper silver and not a pair of scissors in sight.
Just recently, the Royal Canadian Mint launched its own ETF-type silver product, and bought 3 million ounces and Sprott, it seems, has added to his silver ETF with a purchase of around 7.5 million ounces. That together adds up to the total monthly available supply of 1000 ounce bars. This should cause the price of silver to rise but no. How come?
According to Jim Sinclair, noted Silver specialist and Chairman and CEO of Tanzanian Royalty Exploration Corporation, “Most commentators and participants in gold shares are under the assumption that the short interest is made of thousands of hedge funds, from the smallest to the largest. That is totally incorrect.”
“The short in gold shares is very concentrated in just a few large hedge funds with a few hangers on. This is why when there is no fundamental reason for selling they are manipulated against the gold price improvement, just like today. This is to play with your emotion.”
And Ted Butler has also noted on more than one occasion of the high short positions held by JP Morgan along with a couple of others on the COMEX.
Bart Chilton, a member of the U.S. Commodity Futures Trading Commission, in an interview with Lauren Lyster on Russia Today's "Capital Account" program, commented he had received warnings from followers of the market that ‘the price would be pounded imminently often had come true and so could not be ignored.’ He also said that high-frequency trading must be urgently regulated before it causes another "flash crash" in the markets.
But while the manipulation of the silver price continues, a point will be reached where big short position holds could well be overwhelmed if the market perceives a shortage is about to take place.  Something that Butler agrees with. He believes that such events as the big Royal Canadian Mint and Sprott purchases together  with a increase in investor demand could well change market sentiment with the result the  ‘perceived physical shortage will ultimately trump any paper manipulation.’
In fact, Butler reckons that it really won't take very much to tip the balance between silver surplus and shortage at all.
So where does that leave the poor silver investor?  Well in this game of silver, rock, paper, scissors, the best hand is the silver hand. Silver has value. Rock has little value and paper silver has none at all. With real silver, you can store value and you can exchange it. It is worth more than paper money and more than paper silver. The silver futures market is like a mountain built with a deck of cards.  There is no foundation to hold it up and eventually it will fold and come crashing down, and those who bought and own real silver will be ones in front. No scissors needed.


Silver Price and Investment

The silver price continues to be a healthy investment despite the little change in the first quarter of 2012.

According to the Silver Institute, The silver price has more than doubled in two years, from an average of $14.67 in 2009 to $35.12 in 2011. How many other investment strategies can say the same? An investment in silver does not carry any dividends or interest perhaps, but in these days of deteriorating paper money returning a negative interest, the importance of preservation of assets comes to the fore.

Silver investment achieved a historic high last year (2011) of over 282 million ounces (Moz) in silver investment including silver bars, coins and medals. This was equivalent to around ten billion dollars on a net basis, figures not to be demised. In fact silver bar investment grew sixty seven percent in 2011 to 97 Moz and global coins and medals fabricated by nearly twenty percent to over 118 Moz.

China is not just after gold. There was a 60 percent rise in their silver bullion coin output also.

Here is the world silver supply and demand expressed in millions of ounces, as per the Silver Institute. Note that the totals may not add due to rounding.

Mexico produced the most silver in 2011 followed by Peru, China, Australia and Chile. Global production continues to drop apparently due to a fall in processed grades

“Primary silver mine cash costs rose to $7.25 per ounce last year, driven by higher labor costs and lower grades, despite an increase in by-product credits. Nevertheless, with a significantly higher average annual silver price, simple cash margins grew by an impressive 89 percent to $27.87 per ounce” , according to the Silver Institute.

Long term, the silver price continues to be a sound investment and seems set to continue being a leader in asset preservation despite any volatility with the spot price.



Shanghai Silver Exchange

The Shanghai Silver Exchange (formerly known as HuaTong) is the official Chinese exchange group in China and offers an easy way for silver investors in China to buy silver. Their website is Ex-silver.com.

They are currently China's only officially designated exchange group on the silver market and is supported by the Chinese Commercial Federation, the Chinese Chemical & Mineral Trade Federation, the Gold and Silver Branch of the Chinese Association of Non-Ferrous Metals, the Chinese Non-Ferrous Metals Information Center, the Electrical Alloy Branch of the Shanghai Electricity & Science Research Center, the municipal government of Hunan Province's YongXing County, YongXing County's Gold & Silver Association, and Shenzhen Gold, Pearls and Jewelry Trade Association.

The Silver Institute engaged in a China Markets Development Program recently interviewed the CEO of the Shanghai Silver Exchange, Mr Gao Huijie, during a delegation hosted by the Silver Institute. In the interview Mr Gao stated, “The Shanghai White Platinum and Silver Exchange has been designated a spot silver market by the Chinese government. Essentially, we do the following:

a. We fix the price for the spot market. Our price affords a broad overall view of the industrial supply and demand in China. Over 1,500 firms, including miners, refiners, manufacturers and retailers, purchase or sell silver according to our price. We have our own Silver Delivery List of certified brands of silver bars that can be delivered in our market. Many refiners have come to us for their brands to be listed.
b. We provide an electronic platform for our members to buy and sell silver. We have both one-month and one-week contracts.

He also stated that they are one of the primary sellers of silver in China.
China is not just the third largest miner of silver but is also the third largest user of silver in the world. Chinese investors are more and more choosing to buy silver as a way to preserve their assets.

In conformance with Chinese Contract Law, Standard GB/T4135-2002, and Bulk Stock Electronic Transaction Specification, WPSE organizes all silver electronic transactions. In the online commercial network of WPSE, enterprises are able to develop contracts, determine delivery dates, and arrange for the shipment and reception of products. WPSE provides a comprehensive business platform for domestic buyers and sellers of silver in China.

The online booking trade for silver includes two forms: monthly trade and weekly trade. Both the buyers and the sellers are able to sign contract, make payment and get the goods through the online trading platform on site.

The monthly trade has the biggest trading volume and the longest time of implementation. Enterprises can make the payment on the determined price on whatever day within the next 6 months to purchase spot silver, and get the delivery and quality guarantees. In this way, enterprises will be able to control the material cost and improve the sales profit. It is favored by many traders since its implementation.

The weekly trade is tailored to investors and traders after researching on the periodic supply and demand characteristics. The traders quote, deal and signed contracts through the online trading system, and make the delivery or get paid within one week. It can shorten the trading period and meet the demand of various enterprises every week.

They also promoted an "online bidding" mode for participants to stimulate the market atmosphere, which incorporated many modern elements. After the sellers has offered a bid and put the selling instructions on the trading platform, the buyers can search for the items needed, make his bid, then deal it under the rule of "Time and price priority".

Exchange and transfer of warehousing bills online
In order to develop the supply and demand situation of warehousing bills for spot silver, the Shanghai Silver Exchange also promote a brand new system to exchange and transfer warehousing bills as well as selling the bills on behalf of the traders. The warehousing bills are the bills obtained from the traders in the weekly untransferable market.

Enterprises who want to purchase silver can submit the information of "I want to purchase silver" and the system will then collect information and show the sorted feedback. Enterprises can also use the telephone to make price inquiries.

There is an extensive site in Chinese of course with a translation on line in English from which much of this data is obtained.

There are a lot of Chinese interested in buying silver and the The Shanghai Silver Exchange seems to be one of the best ways to buy silver in China.


Silver long vs silver short

So far this year silver has risen 20 percent. This has outperformed gold and platinum and investor interest in silver is increasing in many ways.

According to the Silver Institutes recent press release, "Globally, silver-based exchange-traded-funds (ETFs) account for 586 million ounces (Moz) of silver, up from 576 Moz at the end of 2011. Demand for physical silver bars is also strong. According to several precious metals dealers silver bar sales continue to be brisk."

Investor demand for silver on the commodities exchanges around the world continue to be strong and net silver long positions, the difference between total long positions and total short positions, continue to steadily increase showing a much more confident bullish attitude to buying silver for investment.

Silver investors are also looking at accumulating coins, such as silver eagles and maple leafs for example as an easy way to build up a silver stock over a period of time.

According to "The Future of Silver Industrial Demand," a report commissioned by the Silver Institute and released last March, silver industrial demand is expected to grow by 36 percent to 666 Moz from 2010 through 2015 and silver industrial demand continues to "…remains positive primarily because of the lack of substitution and the wide range of established and ever-growing new uses of silver that are vital to industry."

It is very likely then that even if the occasional shorting of the price of silver, occurs, a practice employed by a few bank, it will only be a temporary halt to the onward and forward march of the price of silver.

By trend the silverprice is showing increasing stability as a result of demand. There will be the occasional hiccup and it would be a mistake to check the silver price on a day by day basis. Look at the trend as that will tell the real story and demonstrate the logic of buying silver on a regular basis.

Silver may be considered as the poor man's gold by some but it can potentially make those 'poor men' well placed in the wealth stakes over time.


Diamond Jubilee Silver Coins

If you want to buy silver coins, the Pobjoy mint has just announced a series of silver coins to celebrate the Diamond jubilee of Queen Elizabeth II who has reigned now for 60 years. Almost as long as Queen Victoria (who reigned 63 and a half years until her death in 1901 at the ripe old age of 81) years)
The Pobjoy Mint has announced the issue of 12 new coins on behalf of Ascension Island, British Indian Ocean Territory, British Virgin Islands, Falkland Islands, Isle of Man and South Georgia and South Sandwich Islands.

Each coin features an image from her Majesty’s life.

Ascension Island
- A portrait of the Princess Elizabeth with the infant Prince Charles in her arms 1948
- Features a portrait of Her Majesty following her Accession in 1952.

British Indian Ocean Territory
- Design features a portrait of Her Majesty and Princess Margaret as children on a rocking horse.
- Depicts Her Majesty and H. M. Queen Elizabeth the Queen Mother.

British Virgin Islands
- Features a portrait of Her Majesty in her Golden Jubilee Year
- Shows Her Majesty Queen Elizabeth II mounted on horseback for the Trooping the Colour Ceremony.

Falkland Islands
- Features a portrait of Princess Elizabeth in the uniform of Colonel of the Grenadier Guards
- Design is of a portrait of Her Majesty in her robes as the Sovereign of the Order of the Garter.

Isle of Man
- A Portrait of Her Majesty Queen Elizabeth II on a State visit to Canada in 2010
- Features an image of Her Majesty at her Coronation
South Georgia and South Sandwich Islands.

- Depicts Her Majesty on Christmas Day in 2009
- Image of Queen Elizabeth the Queen Mother and the infant Princess Elizabeth.

All coins have been approved by Buckingham Palace. Each coin features a unique double effigy of the Queen on the obverse. The first effigy is an up to date portrait of Her Majesty, the second is based on a portrait by Mary Gillick that first appeared on the obverse of coins at the start of her reign. The coins are produced in Proof Sterling Silver and Uncirculated Cupro Nickel, with each precious metal coin struck four times to give a stunning proof finish.

Here is a list of the silver coins available:

Ascension Islands 2012 Diamond Jubilee 2 Coin Proof Sterling Silver Set £115.83
Ascension Islands 2012 Diamond Jubilee Infant Charles Proof Sterling Silver £58.29
Ascension Islands 2012 Diamond Jubilee Young Portrait Proof Sterling Silver £58.29

British Indian Ocean Territories 2012 Diamond Jubliee 2 Coin Proof Sterling Silver Set £115.83
British Indian Ocean Territories 2012 Diamond Jubliee Rocking Horse Proof Sterling Silver £58.29
British Indian Ocean Territories 2012 Diamond Jubliee With Queen Mother Proof Sterling Silver £58.29
British Virgin Islands 2012 Diamond Jubilee 2 Coin Proof Sterling Silver Set £115.83
British Virgin Islands 2012 Diamond Jubilee Golden Jubilee Portrait Proof Sterling Silver £58.29
British Virgin Islands 2012 Diamond Jubilee Trooping the Colour Fine Silver 12gm £45.79
British Virgin Islands 2012 Diamond Jubilee Trooping the Colour Proof Sterling Silver £58.29

Falkland Islands 2012 Diamond Jubilee 2 Coin Proof Sterling Silver Set £119.00
Falkland Islands 2012 Diamond Jubilee Grenadier Guards Proof Sterling Silver £59.95
Falkland Islands 2012 Diamond Jubilee Order of the Garter Proof Sterling Silver £59.95

Isle of Man 2012 Diamond Jubilee 2 Coin Proof Sterling Silver Set £115.83
Isle of Man 2012 Diamond Jubilee Coronation Fine Silver 12gm £45.79
Isle of Man 2012 Diamond Jubilee Coronation Proof Sterling Silver £58.29
Isle of Man 2012 Diamond Jubilee Visit to Canada Proof Sterling Silver £58.29

South Georgia and South Sandwich Islands 2012 Diamond Jubilee 2 Coin Proof Sterling Silver Set £115.83
South Georgia and South Sandwich Islands 2012 Diamond Jubilee Christmas Day Proof Sterling Silver £58.29
South Georgia and South Sandwich Islands 2012 Diamond Jubilee With Mother Proof Sterling Silver £58.29

No information is given on the silver content of each coin or of the weight and size.


The Role of Silver in Industry

Silver plays a very important role in industry and it is true to say that without silver, industry as it currently stands would grind to a halt.

Silver is used in great diversity in industry from automobiles to electronics to health to solar cells and much more. This is very much a good excuse for investing in silver quite apart from the jewelry, coin and silver bullion aspect.

Some of the vital uses for silver in industry include the following:

Automobiles
Batteries
Catalysts
Cell Phones
DVDs and other data storage devices
Electrical and electronic switching
Electrical power
Electronics, including computers, screens, cell phones
Food hygiene
Health
Paints and lacquers
Personal care, cosmetics etc.
Photography
Photon voltaics and solar devices
RFIDs
Silver coated Ball bearings
Surgical appliance and sterilization procedures
Textiles & shoes
Water filtration, Purification, sanitization

Although in many industries the amount of silver used for each application can be quite small, the quantity used means that several tons can be used very easily. Take cell phones for example. Although there is only a fraction of an ounce of silver in each phone, average of .35 grams, nevertheless as there are over 5 billion cell phones on the planet that amounts to almost 60 million dollars worth of unrecoverable silver (only about 1 percent of the silver used in discarded cell phones is recovered).

According to the Silver Institute, the total fabrication demand for silver grew by 12.8 % to a 10-year high of 878.8 Million ounces in 2010. In the previous year silvers industrial use grew by 20.7 % to 487.4 Million ounces.

Silver mine production only rose by 2.5 % to 735.9 Million ounces in 2010 however and this was only because it was aided by new projects in Mexico and Argentina.
Mexico, Peru, China and Australia were the biggest producers of silver in 2010. Top silver producing companies in millions of tones were:

BHP Billiton Australia with 46.6,
Fresnillo plc of Mexico 38.6,
KGHM Polska Miedź Poland with 37.3 and
Pan American Silver Corp Canada with 24.3.

Fresnillo and Pan American being the only primary silver producer (Primary means they have mines that mine exclusively silver as distinct from mines that produce silver as a by-product of mining other minerals).

Catalysts are one of the biggest users of silver in industry. A catalyst is a substance that is used to create a chemical process without itself being changed. As such silver is a very important catalyst in the production of ethylene oxide and formaldehyde, essential in the production of plastics, as the silver itself is not affected by the process and can continue to be used over and over again.

Nevertheless it still takes over 150 million ounces to produce the worlds supply of ethylene oxide and formaldehyde. 90 percent of the silver is used in the production of ethylene oxide from ethylene which is the foundation for such things as polyester, used in the textile industry and plastics used for insulation from electrical conductivity and heat (Handles for stoves, pots, keys for computers etc). In addition 25 percent of the ethylene oxide produced is used to manufacture antifreeze coolant for the auto industry.

Formaldehyde is the other chemical used extensively in plastics. Produced by a catalyst reaction from methanol, using silver, formaldehyde is used in adhesives, laminating resins, plywood and particle board. It produces surfaces that are scratch resistant, good for such products as buttons, dinnerware, appliances, handles etc. Also automotive parts and even toys, so silver plays a very important part here also.

Silver is also used in soldering and brazing. It offers safety, strength and high quality joints which other metals cannot match.

Brazing is the term used for joining materials at temperatures over 600 degrees Celsius while soldering is the term for joining at under 600 degrees Celsius. Silver is added to provide a smooth corrosion resistant joint. You can find these joints in many areas such as air conditioning, refrigeration, power distribution as well as the automobile and aeronautical industries.

Silver is a natural antibacterial and so is more frequently used in homes these days to bond copper piping and eliminate the propagation of bacteria as well as replacing the harmful lead based solvers of yesteryear.

In automobiles well over 36 million ounces of silver are used each year.
Silver forms a very significant part of industry and, with the expansion Photon voltaics or solar devices and silver nano particles we can expect a continuing expansion of silver being used in industry. This will only contribute in no small measure to the value of silver over the coming years. Let's hope that enough silver will be produced out of the ground to support that demand.