Dwindling Supply and Unprecendented Demand Make Silver an Attractive Investment

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It has been nearly two years of pain for investors in silver, but I think the time to start accumulating has come. Prices have stabilized. Inflation is slowly starting to creep up in corners of the world. Some investors have felt burnt by the metal from 2009 to 2012, when quantitative easing was pushing silver to the moon, nearly to $50 per ounce. And yet, here we are at $19 an ounce. The metal heavily reversed course in the fall of 2012, and the precious metal sector as a whole has failed to gain traction. But is now a good time to buy silver? The short answer is yes, particularly for the long term, as I see prices continuing to rise due to inflationary pressures over time. However, there are also key supply and demand issues that you need to be aware of.

Demand for silver is strong. Last year we saw a shortage of both American Silver Eagles from the U.S. Mint as well as junk silver available (that is, pre-1965 U.S. dimes, quarters, and half dollars). In addition, silver ETFs continued buying silver coins and bullion at a record pace. Thus, demand for the metal is there, and has helped keep silver above the $18 mark. This mark serves as an important technical resistance point. It has bounced off this level several times since last fall. Aside from silver being a precious metal, it also has many industrial and technological applications. There will always be some level of demand, but such demand should pick up significantly when the global economy comes fully out of recession.

Despite the stock markets in the U.S. setting all-time highs, the broader economy is still just limping along. Our GDP is barely showing expansion. Further, the jobs picture has yet to improve markedly, though unemployment has come down, albeit slowly. This slow growth has led to industrial demand for silver, but the growth is slow enough to keep the Fed on the easing accelerator, which bolsters the precious metal side of the metal.