After the dramatic decline of the price of silver by 62.1% from its all time high, $48.97 an ounce, on April 28, 2011, to $18.55 an ounce on July 27, 2013, one might ask if an investment opportunity has arisen. In order to find out if now is the right time to invest in silver, the fundamental parameters of this important metal - demand, supply and reserves - require analysis. In this article, I will summarize the global demand for silver. All the demand data for this article were taken from The Silver Institute site.
Demand for Silver
Silver has innumerable applications due to its unique properties. Silver is a white, lustrous, metallic element, which conducts heat and electricity better than any other metal. Silver is the most malleable and ductile of all metals, with the exception of gold. Silver halides are photosensitive and have an astounding ability to record a latent image that can later be chemically developed.
Since ancient time silver has been valued precious metal and it has been used as an investment, to make jewelry, silverware, coins and medals. Today, silver metal is also used in electrical contacts and conductors, in mirrors and in catalysis of chemical reactions. Its compounds are used in photographic film and also as disinfectants and microbicides.
Industrial demand, including electronics, industry and solar panels, was the main sort of demand for silver in 2012, representing 44.4% of the total. The total world silver industrial demand rose from 12,031 metric tons (386.8 million ounces) in 2000, to 14,490 metric tons (465.9 million ounces) in 2012, while the Compound Annual Growth Rate (CAGR) was 1.56%. The growth rate was less than the world mine production growth rate, which was 2.57% in the same period.
Demand for Jewelry
The demand for jewelry represented 17.7% of the total demand in 2012. The total world silver demand for jewelry rose from 5,485 metric tons (176.4 million ounces) in 2000 to 5,772 metric tons (185.6 million ounces) in 2012 while the Compound Annual Growth Rate (CAGR) was 0.43%.
Demand for Photography
The demand for photography, which represented 29% of the total demand in 2000, declined to only 5.5% of the total demand in 2012, due to the digital photography revolution. The total world silver demand for photography, declined from 7,019 metric tons (225.7 million ounces) in 2000 to 1,798 metric tons (57.8 million ounces) in 2012 while the Compound Annual Growth Rate (CAGR) was negative at -10.73%.
Demand for Silverware
The demand for silverware represented 4.3% of the total demand in 2012. The total world silverware demand declined due to the increase in the price of silver, from 3,300 metric tons (106.1 million ounces) in 2001, to 1,396 metric tons (44.9 million ounces) in 2012, while the Compound Annual Growth Rate (CAGR) was negative at -7.52%.
Demand for Coins and Medals
The demand for coins and medals represented 8.8% of the total demand in 2012. The total world coins and medals demand rose from 949 metric tons (30.5 million ounces) in 2001, to 2,883 metric tons (92.7 million ounces) in 2012, while the Compound Annual Growth Rate (CAGR) was 10.63%. Just like in the case of gold, the demand for silver coins and medals for investment purposes is increasing significantly.
Net Investment Demand
The world net investment demand, by means of physical silver ETFS and silver bars, represented 15.3% of the total demand in 2012. The total world net investment demand rose from 1,962 metric tons (63.1 million ounces) in 2005 to 4,976 metric tons (160 million ounces) in 2012 while the Compound Annual Growth Rate (CAGR) was 14.22%.
Here are some important ETFs for silver, which are traded on NYSE Arca:
iShares Silver Trust (SLV), ETFs Physical Silver Shares (SIVR) and ProShares Ultra Silver (AGQ). The table below presents the trailing total returns of holding these funds; year to date (July 01), one year, three years and five years. The returns for the three and five years are annualized.
On one hand, we see a declining trend in the growth rate of silver for industrial purposes and for jewelry due to the increase in its price. Silver demand for silverware is declining because of its high price, and silver demand for photography is declining due to the change to digital photography. Even the fast growing use of silver in solar panels, which is relatively new, might eventually decrease, because main industrial companies are moving to copper instead of silver for reasons of cost reductions.
On the other hand, we see a significant increase in silver demand for coins and medals and for physical silver ETFs and silver bars. Furthermore, the recent drastic decline in the price of silver can regenerate strong demand for silver for industrial purposes and for jewelry.
In the 2nd part of this article, I will discuss the tendency of silver supply and reserves.