More Good News For Silver

Includes: AGQ, SLV
by: Macro Investor

As I have written time and time again, silver gets unfairly grouped with gold. Gold has little to no commercial use and is used primarily for investments, while 65% of silver use is for industrial purposes and photography, and only 20% or less is for investment. This makes silver more like a real commodity. When industrial growth is back, so is silver.

In particular, a lot of silver is used in automobiles. Reports the Silver Institute:

Silver stays with you on the road, too. Every time you drive a car or ride in a motor vehicle, you are taking advantage of a number of the myriad uses of this element. Over 36 million ounces of silver are used annually in automobiles.

This morning, a host of good news came out in the automotive sector, courtesy of our very own Market Currents reports.

  • Thursday, January 3, 10:25 AM Toyota (NYSE:TM) December U.S. sales: +9% to 194,143 vehicles, just missing the consensus estimate of analysts of 10%.
  • Thursday, January 3, 10:11 AM General Motors (NYSE:GM) December U.S. sales: +4.9% to 245,733, more than doubling up the sales growth mark expected by analysts.
  • Thursday, January 3, 10:05 AM Shares of Ford (F +2%) break higher as investors warm up to the automaker's solid report on December sales.
  • Thursday, January 3, 9:02 AM Chrysler (FIATY.PK) December U.S. sales: +10% to 152,367 vehicles, beating the expectations of analysts easily.

Auto demand is back. The total demand for industrial silver is around 486.5 million ounces, so automobiles consist some ~8% of industrial silver demand. A strong growth in this sector will in turn pull up demand for silver. Note that silver supply has been growing at around 1%. A 15% growth in the auto sector in 2013 is enough to counter this, and cause scarcity as overall industrial demand is going up. This is borne out by all the PMI and ISM reports that came out in the past few days, again from our very own Market Currents reports.

Commodity prices are extremely sensitive to marginal demand above supply thresholds, so this bodes well for silver prices in 2013. Interested investors should consider the silver ETFs, viz. the iShares Silver Trust ETF (NYSEARCA:SLV) and the ProShares Ultra Silver ETF (NYSEARCA:AGQ) which is 2x leveraged on the SLV.

Disclaimer: This is not meant as investment advice. I do not have a crystal ball. I only have opinions, free at that. Before investing in any of the above-mentioned securities, investors should do their own research, consult their financial advisors, and make their own choice. I am merely stating what I personally plan to do for my own portfolio.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.