Eric Sepanek
SBC Founder
Eric Sepanek is the founder of Scottsdale Bullion & Coin, established in 2011. With extensive experience in the precious metals industry, he is dedicated to educating Americans on the wealth preservation power of gold and silver.
Momentum is a funny thing: you can find plenty of people who say it’s a factor in everything from sports 1 to presidential elections. 2 While momentum is accepted as a scientific law, it can also be viewed as a social trend. In no part of society can momentum be better analyzed than in markets, where good performances are notorious for streaking upwards, gaining momentum as they go. We can look to momentum in the silver markets for a general understanding of how silver performs when it is doing especially well.
With the spot price of silver experiencing upward momentum, investors have reason to hope for more good news on the horizon.
Demand for Silver on the Rise
All economics on planet Earth derive from the iron laws of supply and demand. When it comes to silver, demand is voracious. The total consumption of over one billion ounces in 2014 was one of the highest recorded levels in the history of the metal. 3 Fabricated silver will increase by 1.6% this year, a level that will certainly beat inflation.
Yet, silver has more uses than shiny jewelry. It’s a valuable contact point for electronics due to its conductive capabilities as well as its ability to withstand heat. Silver oxide is all but impossible to corrode, meaning that high-powered batteries (such as those for nuclear submarines) rely on silver coatings to prevent the acidic compounds within from eating away at the larger engine.
Output of silver, however, is not matching demand.
Silver Supply Facing Shortages
The global supply of silver is expected fall during 2016 for the first time in half a decade. The CPM Group reports that silver is in a unique spot where mines are cutting down on output at the same time that more and more consumers want to snap up available stocks. 4 Mexico accounts for more silver than any other nation in the world, mining over five thousand tons per year, but their National Institute of Statistics and Geography notes that production has been diminishing for two years running. 5
Mexican mine owners aren’t trying to hit peak silver, but instead are carefully managing their projects and output given the downturn of the commodities markets. A drop of about 3% is expected through 2016 from Mexico, with other countries following. Australian silver output could fall even more drastically given the cuts to the industry that have turned former boom towns into ghost towns. 6
With less output from silver mines and more demand in industry and investment, silver seems to be positioned for an upward streak.
Silver Seems to Be Trending Up
The increasing demand for silver is keeping the silver price on a steady growth trajectory. Given silver’s good standing on the market, currently sitting (along with gold) at 15-month highs, investors have to decide whether they think silver momentum will continue.
The diminished supply entering the market suggests that the metal’s momentum is here to stay: producers aren’t pulling enough silver out of the earth to keep up with global demand, leading to growth in value as bidding wars take place for limited resources.
Additional Sources:
1 – http://www.nfl.com/videos/nfl-videos/09000d5d823577d9/Football-Freakonomics-Momentum
2 – http://fivethirtyeight.com/features/momentum-may-matter-just-this-once-in-wisconsin/
3 – https://www.silverinstitute.org/site/supply-demand/silver-demand/
4 – http://www.kitco.com/news/2016-04-26/As-Silver-Plays-Catch-Up-To-Gold-2016-Could-be-Pivotal-Year-for-The-Metal-CPM-Group.html
5 -https://srsroccoreport.com/breaking-news-mexicos-silver-production-declined-over-past-two-years/
6 -https://www.wsws.org/en/articles/2016/02/12/jobs-f12.html