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Silver prices have rebounded about 28% since the lows of late June, and are currently trading at around $23 an ounce.
This move was key for silver prices – it means the metal broke out above its 50-day moving average.
Barclays’ technical analysts pointed out that last week was silver’s best week since 2011, with a gain of 14.3%.
Silver price gains actually have outpaced gold in the past few weeks. Since Aug. 6, the most active September silver futures contract rose about 18%. In contrast, the December gold contract climbed by roughly 6%.
The question is – will a quantitative easing (QE) tapering by the U.S. Federal Reserve derail rising silver prices?
Federal Open Market Committee (FOMC) meeting minutes released today (Wednesday) showed Fed officials agree with Chairman Ben Bernanke: the economy should improve by the year’s end, and the central bank will start to wrap up its $85 billion per month asset purchases.
When exactly the QE taper will start is still unknown. The next FOMC meeting is Sept. 18 and 19, but it’s not the year’s last…
Silver got pulled down along with gold when the talk in the financial markets began about the Federal Reserve tapering their purchases of bonds from the $85 billion-a-month level.
But investors should understand that there’s more to the silver market than the Federal Reserve.
Silver Prices and the Fed QE Taper
The kind of reductions in liquidity that will result from QE tapering are typically bad for precious metals in the short term and for stocks as well, eventually.
But silver should perform well whether the Fed tapers or not.
One reason: the price of silver is tied to industrial use. In fact, in contrast to gold, more than 50% of silver’s annual consumption comes from industrial activity.
For example, silver is particularly useful in electronics because of its ability to conduct electricity.
The metal is also used extensively in solar panels, accounting today for about 6% of total industrial silver usage. From less than one million ounces of demand in 2000, silver demand from the solar industry in 2012 soared to more than 47 million ounces.
And here’s where China may again become a force…
The Chinese State Council recently raised the 2015 target for solar power generating capacity by 67%, from 21 gigawatts to 35 gigawatts. Installed capacity in 2012 was only 7 gigawatts.
Japan is also making a major push toward solar power.
Between those two countries, the silver demand from their solar power industries alone is expected to account for 11% of annual global silver mine supply.
With industrial factors bullish for silver, let’s look at the investment side…
Investor Demand Continues Driving Silver Prices
According to Commerzbank, investors around the world have pushed holdings in silver exchange-traded funds (ETFs) to nearly 20,000 metric tons in 2013.
Holdings in the world’s largest silver ETF – the $7.8 billion iShares Silver Trust (NYSEArca: SLV) – now stand at over 10,525 metric tons.
SLV took in more than $400 million so far in 2013. The impressive item here is that more than half of that amount flowed into the fund during the past month.
The inflow compares very favorably to the outflow of $20.5 billion from the biggest gold ETF, the SPDR Gold Trust (NYSEArca: GLD).
Physical demand for silver also continues apace.
The U.S. Mint is looking at a potentially record year for silver bullion coin sales in 2013, with sales up 47% from last year.
Dick Peterson, acting director of the Mint, told Kitco News, “If present demand continues and our weekly allocations of between 800,000 to 900,000 coins remain constant, we’ll see a new record for sales in 2013.”
The previous record was set in 2011 at 39,868,500 silver bullion coins.
With the Fed’s QE taper disrupting the stock market, physical silver will be an attractive alternative for portfolios…
Now that you know where silver is headed, here’s how to buy it so you don’t miss these profits…
- Kitco Focus:
Silver Outpaces Gold Strongly During Rally of Last Two Weeks
- Barron’s Blog:
Focus on Funds: What Slump? Money in Silver ETFs Is Soaring
US Mint on Track to Set New Sales Record for American Eagle Silver Bullion Coins
- Resource Investor:
Asian Solar Energy Push Might Boost Global Silver Demand
- Financial Times:
Silver Leads China-Based Metals Rally
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