Unlike slumping commodities, silver demand is soaring
It is no longer news that global commodity prices are in a slump due to cooling demand from China. Just about every commodity from soybeans, coffee to base metals have seen declining prices month after month since 2012. While commodity investors rue their decimated portfolio, no one is questioning the reason for the slump in prices - it comes across as a straightforward case of supply and demand.
The price of silver has also been in a decline since its peak in April 2011. Current silver prices are at levels not seen since six years ago. Can this decline be attributed to falling demand for silver? It looks to be an emphatic 'NO' if we observe current levels of industrial and investment demand.
According to statistics from the Silver Institute, the total physical silver demand in 2014 was 1.07 billion ounces - the fourth highest level recorded since 1990. Industrial demand for silver rose in sectors such as from photovoltaic applications, soldering demand and jewellery fabrication. It is undeniable that the unique properties of silver - its excellent electrical and thermal conductivity as well as its antimicrobial properties, make it an indispensable industrial asset.
On the investment front, major mints around the world have reported record sales from silver coins. Demand for silver is so high that they struggle to deliver on time despite deploying more shifts and staff working overtime.
Rationing and even auctioning of the sale of silver coins has become an industry norm across the major mints this year. Wholesalers are increasingly allocating limited amounts of the mint’s output. This has in turn put upward pressure on physical silver premiums. Bullion dealers are increasingly facing stock sellout with pre-order duration going into months.
With the demand for physical silver so high, it is indeed a curious thing for the price of silver to be so depressed at the moment. This price mismatch can only be attributed to the heavy selling of the profusion of paper silver derivatives in the market. Silver as it is today is severely undervalued. The current price cannot be sustained because physical silver cannot be conjured out of thin air like currencies. To the patient and informed, there is no better time to accumulate this undervalued asset.