Demand and Supply Disparity to Send Silver Prices Higher
Silver prices are significantly undervalued if you look at the demand-and-supply situation in the gray precious metal market. Don’t rule out silver prices of $50.00 per ounce just yet.
The supply side seems to be struggling, and the demand for the gray precious metal remains solid. Economics 101 suggests that this disparity in the most basic economic factors is a perfect recipe for much higher prices.
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To assess the supply side of the silver market, just pay attention to the major silver-producing regions. We are seeing a significant amount of struggle.
Consider Mexico, for example. In the first eight months of 2016, silver production amounted to 392,985 kilograms per month on average. This was the lowest monthly silver production average for the first eight months since 2012! (Source: “Value and volume production of Silver,” Servicio Geológico Mexicano, last accessed November 29, 2016.)
Mind you, Mexico is the biggest silver-producing country in the world. Other regions are reporting anemic silver production as well.
On the demand side, we continue to see buyers who are interested in buying regardless of where silver prices stand.
Look at the silver sales at the mints around the world to get some idea for demand. For instance, take the U.S. Mint. Year-to-date, the mint has sold 37.411 million ounces of silver in American Eagle coins. The mint is on track to report lower sales in 2016 than in 2015, but the sales level remains elevated. (Source: “Bullion Sales,” United States Mint, last accessed November 29, 2016.)
Pay attention to India as well. The country known for its appetite for gold could turn out to be a major buyer for silver as well. We are seeing an immense amount of silver being imported into the country. In October alone, $181.93 million worth of silver was imported into the country. (Source: “Quick Estimates For Selected Major Commodities For October 2016,” Government of India Ministry of Commerce and Industry: Department of Commerce, last accessed November 29, 2016.)
If we assume the average price of silver in October was $18.00 an ounce, then India imported 10.1 million ounces of silver in that month alone!
Here’s one thing you have to consider when looking at demand for the precious metal in India. Recently, the government of India abolished the 500-rupee and 1000-rupee notes out of nowhere. You have to question if this will force Indian investors and consumers to save their wealth in gold and silver much more than they did previously. It’s possible, and it could change the dynamics of the precious metal market.
Silver Prices Outlook: $50.00 Silver Could Be Possible
Dear reader, in the short term, irrationality prevails. But, in the long run, fundamentals come into play.
With this disparity in demand and supply in the silver market, we could see a super-spike in silver prices. We could see investors rushing to buy the gray precious metal, and not find any to buy.
With all this said, I will be bold here and say this: $50.00 per ounce of silver shouldn’t be ruled out just yet. Currently, silver prices are trading pennies on the dollar. Don’t ignore silver; it could be the next big trade in the making.
