Could a bubble be forming in precious metals? Even though the true demand for silver has increased with the demand for higher-end electronics, the price of silver is outpacing true demand. What I mean by true demand is the demand of end-user silver products rather than silver holdings (bullion, coins, ETF shares, etc). True demand is the demand of users to take physical silver and use it in computers, mirrors, anti-bacterial products, flatware, and of course jewelry, just to name a few items.
The artificial demand that we are seeing now (and possibly the start of a bubble) is the demand created by precious metals ETFs (Exchange-Traded Funds). The first precious metal ETF was a Gold ETF that was created in 2004, followed by a second Gold ETF in 2005 and the first Silver ETF in 2006. Each purchase of a share of an ETF represents a physical amount of gold or silver that the administrator of the ETF must buy on the open market and hold in their vaults. There are currently 25 Gold ETFs and 14 Silver ETFs just between the American, Canadian, and British stock exchanges. Today I just read about another Silver ETF that will IPO soon on both American and Canadian exchanges. This means more buying of silver so they can hold in their vaults.
The following is a report I read today on MineWeb.com regarding who silver investing reached an all-time high in 2010. Even though silver usage is up, I feel we are now at the mercy of speculators (some say investors). The price of silver is now four times higher than it was in 2005 and I know true demand hasn't increased four-fold as well. Classic start of a bubble!
Silver investment is breaking records in 2010--Silver Institute
Recent data gathered by the Silver Institute reveals record silver investment, as well as soaring bullion coin demand.
Author: Dorothy Kosich
Posted: Tuesday , 02 Nov 2010
The Silver Institute noted Monday that silver investment has soared this year with record highs in silver-backed ETFs as U.S. silver bullion coin demand remains "exceptionally strong."
Total global holdings in silver ETFs now stand at 448,997,000 million ounces with 326 million ounces being held by the iShares Silver Trust alone, the Silver Institute said.
Net assets in the iShares Silver Trust totaled $7.8 billion as of October 29th.
Other notable silver ETFs are being managed by ETF Securities and Zurcher Kantonalbank, with Sprott Inc. recently announcing its IPO for the Sprott Physical Silver Trust, which will be listed on the Toronto and NYSE Arca exchanges.
The Silver Institute also advised that silver bullion coins are "also particularly buoyant" this year with sales of the U.S. Mint's one-ounce Silver American Eagle Bullion coin already surpassing 28 million coins this year. The Mint believes sales could exceed last year's record of 28.7 million coins.
The Royal Canadian Mint is reporting that this year's sales of its Silver Maple Leaf bullion coin are already 30% higher than last year's sales to date, the Institute said.
"Today, the silver price is approaching $25 per ounce and thorugh 2010, the silver price has risen an impressive 47% to levels not seen in 30 years," Silver Institute Executive Director Mike DiRienzo observed Monday. "While this is primarily due to solid investment demand, there is evidence that industrial demand for silver is also on the rise, and that too bodes very well for silver in the long run."