Silver Supply Versus Demand in 2009

The price of silver has recently shot up as investors are flocking to precious metals as a hedge against inflation and poor economic performance, especially in the stock market.  The price of silver was in the low $11's at the beginning of the year and has climbed nearly 25 % to reach well into the $14's this week.  It's no surprise that silver tends to mirror gold's performance, which is tied to so many factors that it's often hard to discern the future direction of movement until underlying factors are unraveled.  But silver's growth potential may yet be untapped if the economic crisis that is being experienced worldwide sticks around for the rest of the year.

Silver investing has ballooned 103% since the same time last year.  This is in part because of the troubled economic times but also because people are looking to escape or at least head off major inflation worries.  Increased mine output usually follows a large increase in investing, which is the case this year, but not for the reasons you'd likely assume.  Silver mining output has increased this year but almost entirely because silver is a major by-product of gold mining, and gold mining has really taken off in 2009.  So it's not that silver mining outfits are increasing their silver mining at all, the increase in above ground silver is a by-product of the huge increase in investor demand for gold.

So what does this mean for the average investor?  Apart from the idea that more people bought into the higher oil prices during the peak cost period last year than ever before, perhaps we're due for a gold price correction sometime in the near future.  There's an increased amount of the yellow metal above ground and if the economy begins to recover, this overhanging surplus in supply could prove to be a price killer in the end.  The same is true for silver.  However, unlike gold, silver mining hasn't really increased exclusively.  It's been the by-product that has been helping to add to the above ground silver stock recently, so yes, there is a greater supply of silver for investors looking to round out their investment portfolios, but that supply may be short lived.  This would mean that silver might very well stay above $12 an ounce all year with peaks around $16 or $18 not out of the question.

So many seasoned silver investors who are holding for the short and mid term are asking if $14 silver is too expensive, and whether or not it would benefit them to wait for $10 silver again.  In this market, as long as the economy shows signs of a slow recovery or perhaps no recovery at all for the short term, $14 silver is still a pretty good deal.  And that's $14 silver at a time when industrial demand for silver is near an all time low.  Just think what would happen if demand were ramped up and the economy remained slow to get back on its feet.  We could once again easily see $20 an ounce silver