Arecent drop in the price of silver has led some analysts to speculate that this precious metal is no longer a wise investment. But what these analysts have overlooked is that new technological uses for silver will soon boost its value.
Ready for Business
Silver is in tremendous demand as a raw material in industry. It has a unique combination of characteristics that make it ideal for a staggering variety of uses, and the long-term outlook is good. Specifically, silver is primed for enormous long-term growth primarily because of the many new technological uses that have recently developed for this precious metal. Demand for silver is expected to increase exponentially in the following four key technologies:
Investors should note that current demand for silver is already about 900 million ounces each year, which does not include any of these new technological uses. And the supply of silver is dwindling.
Silver supply can be divided into three main categories: mine production, government sales, and scrap recycling. Of the three, government sales account for only 8% of supply, and are unlikely to increase, since world governments have almost run out of silver to sell. Scrap recycling accounts for about 21% of supply, and should also hold steady.
A Scarce Supply Available
The story gets interesting with mine production, which provides about 70% of the silver supply. Usually, the price of a mine-produced commodity is somewhat self-correcting. The more the commodity's price goes up, the more the mines can produce. With the higher price, low-grade deposits become profitable. As price increases, supply increases, which brings the price back down. This rule doesn't apply to silver. Most silver is produced as a by-product of other mining operations, such as those for extracting copper, lead, and zinc. Even if prices rise, the mines won't necessarily increase silver production. In fact, their production might even decrease, if the price of their primary product falls and they are forced to reduce their operations. Over the next year or 2, silver mining is predicted to grow minimally, by 1% or 2%. Compare that mild increase in supply with the growing demand that is expected to take off, and investing in silver becomes a very interesting prospect. While a few small mining stocks look promising on the surface, they're too high-risk for most investors. Instead, investors should buy into bullion coins, semi-numismatic coins, and genuinely rare numismatic US coins. A few smart investment options include the following:
James DiGeorgia is editor and publisher of the Gold and Energy Advisor Newsletter (www.goldandenergyadvisor.com) and the author of the popular books The New Bull Market in Gold and The Global War for Oil.