G-khan
04-22-2003, 07:45 PM
Silver has been touted as the next big thing in global markets, so why is it still depressed? Susan Campbell investigates.
What do George Soros, Bill Gates, Warren Buffet and the World Bank have in common? Give up? They are all rumoured to have large holdings in silver
Australia is the fourth largest silver-producing country and BHP owns the world's largest silver mine, so investing in silver is worth considering.
Silver is plentiful and is also the least expensive precious metal. It is malleable, highly resistant to corrosion, a superior reflector of light and a conductor of heat and electricity. Silver demand is mainly for industrial purposes and applications in which the metal is a small part of the finished product. Consequently if the price of silver doubles it has a relatively small impact on its industrial demand.
Only about one fifth of silver is mined as a primary metal. Most silver is mined as a by-product of lead, zinc, copper and gold. This results in significant quantities of silver being produced at operations where it is not the primary target or the principal earner of revenue. This is the case with BHP and Newcrest. Most stock brokers and analysts in Australia in general do not follow the silver market to the same extent as gold. They see it as a market that is hard to buy into, i.e. there are no direct silver investments, and a market that is easy to manipulate.
Like gold, silver can be included in an investment portfolio in a number of different ways. It can be purchased as bullion bars through approved refiners, which is usually the least expensive method of purchasing the physical commodity. However you have to consider storage and insurance costs and the fact that silver yields no interest.
Silver bullion coins and medallions are also available, with some less than US$10. They are small, easy to transport and store, and internationally negotiable. But again there are storage costs and they yield no interest, and you also pay a premium over silver bars.
In the US you can invest in silver mutual funds that specifically invest in silver and precious metals and silver mining companies. This may be a good way of investing in a diversified silver portfolio. In the US, you can invest in silver storage certificates and storage accounts. This saves investors the insurance and storage costs but they are not actually in possession of the silver and there is a delay of a few days when converting to cash.
Another major use for silver has been in the technological and photographic market. Although these markets are growing, their rate has slowed with the development of digital photography. Deutsche Bank estimates an annual growth rate in total consumption of around 2% over the next three years, with the market moving into a supply surplus over this time.
One of the more striking differences between gold and silver is that virtually all the gold ever mined is still with us whereas most of the silver has been consumed through industrial processes. The supply of silver also comes from old scrap where silver is recycled back into the market. In 1999 this was equivalent to around 30% of the silver produced.
Another important issue for investors in silver is the existence of an inventory or speculative overhang on the market. For example, one of the questions that repeatedly circulated through the market last year and early this year was whether Berkshire Hathaway (BH), the investment company owned by Warren Buffet that purchased 129.7 million ounces of silver between July 1997 and January 1998, still holds some or all of its large position.
Specialist silver and precious metal commentators have different opinions as to whether this large position still exists. Precious metal traders at Deutsche Bank in London believe that Warren Buffet sold out of his position some time ago as a result of China's continual selling of silver, the movement of photographic technology to the digital camera and large holdings of silver continually being sold into any price rallies. The CPM Group, a specialist precious metals consultancy based in New York, has argued that Warren Buffet is still sitting on his silver stockpile, as there has been no mention of a change in his position in BH's past two annual reports.
So what has kept the price of silver so low? According to Peter Richardson, head of global commodity research at Deutsche Bank Research in Australia, silver has been depressed either by private or central bank inventory liquidation. Recently, the Bank of China's selling of its silver stockpile has had a particularly negative impact. China's currency was the last in the world to be based on silver. China has never revealed the volume of silver it has in its vault, but the silver is not earning the Chinese Government any money and selling silver for US dollars gives China a ready supply of foreign income.
The impact of the Hunt brothers' manipulation of the market more than 20 years ago is also blamed for many of silver's current problems. Due to that rally in silver when prices went to their highest levels in a century, many people hoarded the metal and have watched their positions being eroded.
Although no-one accurately knows the total of silver in the market, there are still many people with hoards of it who continually supply the market. Indians are known to be sellers of silver. Whenever the value of the rupee drops or the US dollar price of the metal rises, they enter the market to sell some of their stockpiles.
The price of silver is trading at around US$4.50 and Australia, Mexico, Peru and the US continue to produce it.
But is silver actually a good investment? Some see silver as the next big rally in global markets and the last investment of value in the world. But there are many more who believe that the Bank of China and worldwide holders of silver will keep the price below US$8 - US$10 per ounce, for many more years.
---------------------------------------------------------------------
About the author
Susan Campbell is CPA Australia's finance adviser
http://www.cpaaustralia.com.au/03_publications/02_aust_cpa_magazine/2001/29_june/3_2_29_silver.asp?%20:cool: :D :cool: :cool:
What do George Soros, Bill Gates, Warren Buffet and the World Bank have in common? Give up? They are all rumoured to have large holdings in silver
Australia is the fourth largest silver-producing country and BHP owns the world's largest silver mine, so investing in silver is worth considering.
Silver is plentiful and is also the least expensive precious metal. It is malleable, highly resistant to corrosion, a superior reflector of light and a conductor of heat and electricity. Silver demand is mainly for industrial purposes and applications in which the metal is a small part of the finished product. Consequently if the price of silver doubles it has a relatively small impact on its industrial demand.
Only about one fifth of silver is mined as a primary metal. Most silver is mined as a by-product of lead, zinc, copper and gold. This results in significant quantities of silver being produced at operations where it is not the primary target or the principal earner of revenue. This is the case with BHP and Newcrest. Most stock brokers and analysts in Australia in general do not follow the silver market to the same extent as gold. They see it as a market that is hard to buy into, i.e. there are no direct silver investments, and a market that is easy to manipulate.
Like gold, silver can be included in an investment portfolio in a number of different ways. It can be purchased as bullion bars through approved refiners, which is usually the least expensive method of purchasing the physical commodity. However you have to consider storage and insurance costs and the fact that silver yields no interest.
Silver bullion coins and medallions are also available, with some less than US$10. They are small, easy to transport and store, and internationally negotiable. But again there are storage costs and they yield no interest, and you also pay a premium over silver bars.
In the US you can invest in silver mutual funds that specifically invest in silver and precious metals and silver mining companies. This may be a good way of investing in a diversified silver portfolio. In the US, you can invest in silver storage certificates and storage accounts. This saves investors the insurance and storage costs but they are not actually in possession of the silver and there is a delay of a few days when converting to cash.
Another major use for silver has been in the technological and photographic market. Although these markets are growing, their rate has slowed with the development of digital photography. Deutsche Bank estimates an annual growth rate in total consumption of around 2% over the next three years, with the market moving into a supply surplus over this time.
One of the more striking differences between gold and silver is that virtually all the gold ever mined is still with us whereas most of the silver has been consumed through industrial processes. The supply of silver also comes from old scrap where silver is recycled back into the market. In 1999 this was equivalent to around 30% of the silver produced.
Another important issue for investors in silver is the existence of an inventory or speculative overhang on the market. For example, one of the questions that repeatedly circulated through the market last year and early this year was whether Berkshire Hathaway (BH), the investment company owned by Warren Buffet that purchased 129.7 million ounces of silver between July 1997 and January 1998, still holds some or all of its large position.
Specialist silver and precious metal commentators have different opinions as to whether this large position still exists. Precious metal traders at Deutsche Bank in London believe that Warren Buffet sold out of his position some time ago as a result of China's continual selling of silver, the movement of photographic technology to the digital camera and large holdings of silver continually being sold into any price rallies. The CPM Group, a specialist precious metals consultancy based in New York, has argued that Warren Buffet is still sitting on his silver stockpile, as there has been no mention of a change in his position in BH's past two annual reports.
So what has kept the price of silver so low? According to Peter Richardson, head of global commodity research at Deutsche Bank Research in Australia, silver has been depressed either by private or central bank inventory liquidation. Recently, the Bank of China's selling of its silver stockpile has had a particularly negative impact. China's currency was the last in the world to be based on silver. China has never revealed the volume of silver it has in its vault, but the silver is not earning the Chinese Government any money and selling silver for US dollars gives China a ready supply of foreign income.
The impact of the Hunt brothers' manipulation of the market more than 20 years ago is also blamed for many of silver's current problems. Due to that rally in silver when prices went to their highest levels in a century, many people hoarded the metal and have watched their positions being eroded.
Although no-one accurately knows the total of silver in the market, there are still many people with hoards of it who continually supply the market. Indians are known to be sellers of silver. Whenever the value of the rupee drops or the US dollar price of the metal rises, they enter the market to sell some of their stockpiles.
The price of silver is trading at around US$4.50 and Australia, Mexico, Peru and the US continue to produce it.
But is silver actually a good investment? Some see silver as the next big rally in global markets and the last investment of value in the world. But there are many more who believe that the Bank of China and worldwide holders of silver will keep the price below US$8 - US$10 per ounce, for many more years.
---------------------------------------------------------------------
About the author
Susan Campbell is CPA Australia's finance adviser
http://www.cpaaustralia.com.au/03_publications/02_aust_cpa_magazine/2001/29_june/3_2_29_silver.asp?%20:cool: :D :cool: :cool: