Silver Investment Demand: The Ticking Time Bomb

Even though silver investment demand has picked up recently due to the lowest prices in over two years, this may be just the tip of the iceberg for what is to come in the future.  Currently, only a small fraction of investors understand silver’s future potential but that will change in the next few years.

Presently, the Main Stream Media bandwagon has been quite busy putting out bearish analysis on silver demand and price.  Whether it’s due to a decline of industrial demand or a lack of silver investment by those in India, there doesn’t seem to be a shortage of this sort of commentary.  However, this should not be a concern for those who understand the true fundamentals in owning silver.

The underlying problem with this present bearish commentary is that it is so typical coming from an industry that provides forecasts based on superficial, outdated and manipulated data.  The world’s financial system is being propped up by trillions of dollars of worthless paper instruments that have totally distorted the market’s ability to value assets correctly.  Some of these so-called assets are severely inflated, while others such as silver, are tremendously undervalued.

Severely Inflated Supposed Assets

According to the Investment Company Institute’s Q4 2012 report, the U.S. Retirement Market was valued at $19.5 trillion, up from $19.3 trillion in previous quarter:

Q4 2012 Retirement Market Break-down (in trillions)

IRA’s = $5.4

DC Plans = $5.0

Private DB Plans = $2.5

State & Local Govt Pension = $3.2

Federal Pension Plans = $1.6

Annuities  = $1.7

TOTAL = $19.5 trillion

Now, if we compare that data to the ownership of gold and silver, we have the following:

Gold & Silver Investment vs U.S. Retirement market Q4 2012

Here we can see just how insignificant precious metal investment is compared to the total U.S. Retirement market.  Furthermore, the current total value of the GLD & SLV is only worth 1% of the entire United States IRA market.

How can this be?  How did the public get hoodwinked into owning such a large degree of paper assets when gold used to be apart of an individual’s portfolio in the past?  The answer to that question is probably due to the public suffering from four decades of amnesia since the dollar was backed by gold.

The financial system is in a complete mess.  The only thing holding the global paper facade together is the continued monetary stimulus and bond purchasing by the world’s central banks.  This sort of activity has a lifespan, whose death may be close at hand.

Silver Investment Demand & Price

An error that many typical analysts make today, is to produce a silver price forecast based on industrial demand.  Even though industrial demand is one of the forces that impacts the price, investment demand has been the overwhelming factor in the past several years.

Silver Investment Demand & Annual Price 2002-2012C

From 2005, when the price of silver really started to take off and until 2011 when it hit a new annual high of $35.12, industrial demand mainly fluctuated between 450 & 500 million oz.  However, total investment demand (coin-medal & implied net investment) rose from nearly 100 million oz in 2005 to over 250 million oz by 2012.  It was due to this huge increase of investment demand during this period that pushed the price of silver to new highs.

Unfortunately for the precious metal investors in 2011, high silver prices generated levels of investment demand too rich for central banker’s blood.  So after a record of 5 margin hikes on future’s contracts in May, 2011 and constant market rigging by central banks, silver investment demand declined in 2012.

This can be spotted quite easily if we look at official coin & medal demand (shown by the bars at the bottom of the chart) versus the price of silver in the graph above.  As official silver coin sales increased from 40 million in 2007 to a peak of 118 million in 2011, the price of silver increased and peaked at the same time.  But as demand for official coins such as Silver Eagles and Canadian Maples declined 21% to only 93 million oz  in 2012, the price of silver fell along with it.

Furthermore, this was true with silver bar investment.  According to the data from the 2013 World Silver Survey, silver bar investment declined from 100.6 million oz in 2011 to nearly half in 2012 at 53 million oz.  In just one year, investment demand from these two sources declined 73 million oz (33%).

A Brief Word on Precious Metal Manipulation

Surprisingly, there is still a great deal of debate on the validity of precious metal manipulation in the market place.  There are some very well known precious metal analysts who think the whole idea of market rigging is just plain silly.  To them, it’s just a matter of supply and demand.  However this is indeed the problem at hand.

How on earth can the markets value a commodity properly when the majority of central banks in the world are manipulating and controlling the value of their respective fiat currencies via Treasury and Bond purchases?  By continued manipulation of the bond and currency markets, the central banks have forced artificial demand in paper assets while attempting to destroy physical demand in gold and silver

Global Silver Investment Demand:  A Ticking Time Bomb

This next chart shows just how much silver investment demand has increased in the past five years.

Global Silver Investment 2007-2012

In 2007, total global silver investment was valued a $500 million.  However, five years later this amount grew to nearly $8 billion in 2012.  While that sounds like a great deal, this figure seems insignificant compared to the dollar amounts being thrown around the world today.

If we were to add up all global silver investment from 2007 to 2012 we would end up with a total of $26.4 billion.  That’s right… $26.4 billion.  It is a very paltry figure when we realize the Fed purchases $85 billion a month of U.S. Treasuries and MBS – Mortgaged Backed Securities.

Just think about it, the Fed bought more in MBS in the month of May than was invested in silver by the world in the past five years.  When we examine these two figures together, it puts it into perspective just how out of whack the whole system has become.

The central banks will continue with the insanity of using monetary stimulus to prop up the world’s financial markets until the whole system implodes.  Once the Fed and central banks lose control of over the paper game, there will be a mad rush out of paper instruments and into physical assets.

Not many realize it, but Silver investment demand is a ticking time bomb.

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17 Comments on "Silver Investment Demand: The Ticking Time Bomb"

  1. Today would be a good day to buy some more silver. I wonder if the comex is going to default on its gold orders soon. They would just lie about it if they did anyway.

  2. $8 billion dollars for 2012? That’s it? Ben prints that up in 67.8 hours! And that’s just the Fed. how about everyone else in the world that prints?

    • Rojelio… yes, that’s correct. It is quite amazing to see analysts who put out with these forecasts for silver to hit $20 because of a lower demand. When the Fed and other central banks print money and buy their respective bonds to prop up the market… there is no correct forecast for future prices, because there is no real market.

      Sure, we may see $20 Silver, but I will tell you that the top 12 silver miners in my analysis are almost all losing money. First Majestic may be the only miner that can make a FEW CENTS if silver was at $20… and I mean a FEW PENNIES at most.

      However, the rest are underwater at prices much higher than $20. This will be in my reports in the future.

      steve

      • they raid the paper in order to loot the physical and dampen investment demand.

        this correction is much worse than 2008!

        sometimes, i really hate myself for ever looking at silver.

        it is unbearable painful.

  3. Keep em’ coming, Steve. Brilliant stuff.

  4. with silver below 22, we’ll see 20 again or even below 18-19. damn!

    can’t the miners just shut down and take several months off?

    silver standand can afford this since it has so much cash.

    i’m wondering how much physical silver inventory was looted to orchestrate the raids since sept. last year. it’s been almost 10 months! and 21 months since May 2011!

    OMG!

    • judejin… actually Silver Standard has some of the highest cost per ounce. The only reason why they have shown positive net incomes in the past 6 quarters is due to selling of properties.. not mining.

      This will be apart of the membership service. I will be showing net income break even as well as my estimated silver break even for each individually and as a group.

      First Majestic has the lowest cost structure of the group… that is why their stock price has not declined as much compared to the others in the past several years.

      steve

      • i know. silver standard can’t make money at current price. so why not just shut down and take some days off.
        ssri spinned off a gold mine property.

        gold/silver miners right now are basically slaves of wall street price manipulators.

      • i can read financial statements myself. i’ve been tracking the miners too. they are bargains now, trading below book value.

        • judejin… it would be interesting if the miners got together and formed some kind of silver cartel so they could have some bargaining power when it comes to price. However, many already have contracts to sell their silver so it makes it more difficult to hold back supply.

          Lastly… I appreciate your comments from your perspective. And yes, I noticed another 45 metric tonnes of silver was taken off the Shanghai Exchange on Friday.

          steve

          • chinese physical silver holding per capita is much smaller than the american, who has about 1 silver eagle per capita.

            chinese gold holding per capital is about half of the indian, 1/3 of the american, and is increasing by about 1 gram per capita every year.

            i’m wondering whether it is already too late for the chinese to catch up.

            my prediction is all the secret accounts held by corrupt chinese officials in swiss banks will be cyprused or hyper-inflated-away or sun-beamed-away someday.

            wealth or money can’t be pure digits on the hard drive without any backing.

      • So, the product is so worthless, they can only make money selling property containing the worthless product? (As Cary Grant said to Ralph Bellamy in His Girl Friday (maybe that should have been His Girl Lucky Friday), “I don’t get it.”

  5. Imagine you drive to the gas station where the spot price is $3/gallon but they charge you $4/gallon. Since this pricing mechanism seems perfectly credible to most folks, this kind of slides along for awhile. Then one day, you drive up and can only fill your tank with a paper certificate saying that you own 50 gallons of high-grade gasoline. you’ll profit handsomely if the spot price of your gasoline certificate goes up. Too bad you can’t drive with your paper gas but it says on TV that car drivership is expanding at a healthy clip, so just hang in for the long run. That’s how you grow your investment. Unfortunately its difficult to make much profit in this market due to the extreme (downward) volatility. At some point, your only choice is to just walk.

  6. Great charts Steve.
    The ‘western and ‘eastern’ investment mindset is as different as night is to day. The Indian farmer, or the Chinese shop owner, take their savings and buy physical gold and silver. They have a healthy distrust of their respective governments and the diresction of the past and current fiscal policies that they form and follow. This distrust is ingrained in the population through generations of hard won, negetive governmental financial experience.

    The European/North American investment mindset is the opposite of the eastern model. Here the savings are poured into paper assets; stocks, bonds, ETF’s, REIT’s, etc. With hardly a thought to owning physical gold and silver. The majority of the population still put their confidence in the system and think that the government is ‘looking’ after their best interests. This you can put down to the success of the financial/governmental propaganda MSM machine.

    The writing is on the wall for everyone to see, if you want to read between the lines, but most will never see what is coming at them. When this time bomb blows, most will be surprised. Exclaiming, “We never seen that coming!”

    • Rojelio… very good analogy.

      OutLookingin.. you are correct. What I found interesting was shown in my recent post at the link below:

      https://srsroccoreport.com/the-greatest-fundamental-reason-to-own-precious-metals/the-greatest-fundamental-reason-to-own-precious-metals/

      75% of U.S. Pension funds are invested into Equities, Treasuries and Bonds. Furthermore, the global insurance funds that make up nearly $25 trillion have the majority invested in Foreign Bonds, Corporate Bonds and Equities.

      So here we can see the REAL MOTIVATION for Central Banks to prop up these markets, while at the same time shoving a knife in the back of gold and silver.

      steve

    • “This you can put down to the success of the financial/governmental propaganda MSM machine.”

      Sure, that’s one reason, but people go by their experiences and one has to admit that the system HAS provided for quite awhile now, at least since after WW2. The absurd levels of overconsumption witnessed in the US remains unparalleled in human history. Humanity may never see that again. That was real consumption, not all propaganda. And the party isn’t 100% over yet. Many mainstream people still have a decent standard of living, their swipe cards still work, never heard of a bail-in because it HASN’T happened to them, the grocery stores are full, 18-wheelers somehow still roll even at 6mpg, the interfacenet works better than ever, gloom and doomers like Rojelio always turn out wrong….. what’s the problem?

      Most people are like, what am I gonna do, walk around like a pirate with a little baq of gold and a pegleg? It’s so much nicer just to click-click on the Corpco website and have the goods delivered in 3 – 5 business days.

  7. first gold ETFs were approved today in china. the ETFs will be listed on shanghai stock exchange. it seems that the ETFs are paper only, backed by gold paper contracts trading at shanghai gold exchange.

    i still think the timing is positive for gold/silver.

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