Silver News

Fundamental Change in Supply/Demand Coupled with Investor Interest Yields 17-Year High in Silver Price: World Silver Survey 2005

Last year’s increase in the price of silver -- 36 percent to an average of $6.66 per ounce –reflects a fundamental change in the supply/demand balance of the precious metal, according to the recently-published World Silver Survey 2005.

“An important foundation for the rally in silver has been the strength of fabrication demand,” the WSS noted. “Even though fabrication fell by 2 percent last year, that was an outstanding result in light of the increase in silver prices.” If the one key area of price sensitivity – Indian jewelry and silverware fabrication – is excluded, silver offtake actually rose last year in spite of the ongoing decline in photographic end use. “Looking ahead, even though a slowdown in world GDP growth could cloud the picture,” the report added, “ the underlying trend in fabrication seems to be positive…”

Other factors contributed to the silver price reaching a 17-year high last year. On the supply side, scrap supply is declining because of the lower photographic demand. Government sales also dropped as the flow of Chinese silver was reduced. Global mine production rose by 3.8 percent or 23.2 million ounces last year -- and is expected to increase faster and further from next year onwards -- but will not have much impact this year.

On the demand side, investors drove silver prices beyond what would have been expected from the other supply-and-demand factors. “Investment demand for the metal has been the dominant factor behind silver’s advance since late 2003,” the WSS stated. Although it is impossible to predict investor behavior in the long term, for this year at least investor demand for silver will contribute to silver’s higher price.

There are several reasons for investor interest in silver. First, investors see silver as a viable asset class, and the trend toward buying silver as a commodity is expected to remain strong. Second, silver has traditionally tracked gold’s price, and the authors of the report predict that gold will continue to rise and silver will follow. Third, as silver’s price rises, more speculative investors – mainly high net worth investors -- will be attracted to both futures and over-the-counter markets. Last, as the supply/demand fundamentals continue to improve, investors will become increasingly interested in silver with many buying on the price dips and keeping these purchases as part of a core investment portfolio.

The 2005 edition of the World Silver Survey was independently researched and compiled by London-based GFMS Limited, the metals research company. The Silver Institute has published this annual report on the global silver market since 1990. The World Silver Survey 2005 was sponsored by 18 companies and organizations from North and South America, Europe and Asia. These firms are involved in most aspects of the global silver industry, from mining and refining to trading and manufacturing.

Copies of World Silver Survey 2005 are for US$195 from The Silver Institute, 1200 G Street, NW, Suite 800, Washington, DC 20005, 202/835-0185; fax 202/835-0155, or from the Institute’s website at www.silverinstitute.org. You can also e-mail your request to the Silver Institute at info@silverinstitute.org. An order form also is included on the last page of this newsletter.

Silver News - Third Quarter 2005