Gold

Source: Mining Journal

Much has been speculated and written about the Egyptian and Libyan crises as they relate to the gold market, but another, perhaps even more volatile situation, has been brewing in Ivory Coast since last November. Although it is the world’s leading cocoa producer, the Ivory Coast is also home to several gold mines.

Stemming from a disputed November 2010 election in which current president Laurent Gbagbo was awarded the presidency on what many claim to be a faulty vote the country’s Election Commission showed that his rival, Alassane Ouattara, won the majority. Nothing less than a civil war erupted, continuing to this day with more than 1,500 people killed so far.

Early in March, the London-based company Cluff Gold shut down its operations at the Angovia mine, one of two West African gold mines operated by the company, citing “shortages of fuel, explosives, cement and cyanide. These shortages were mainly caused by disruptions in the supply pipeline. Even more recently, Australia’s Newcrest Mining has halted its operations in south-central Ivory Coast, where the Bonikro mine lies relatively close to the contentious city of Abidjan.

Bonikro began producing gold in August 2008, and during its first full year, production was 150,023 ounces, according to Reuters. The Angovia mine produced around 20,000 ounces in 2010, and intended to reach 25,000 ounces this year. Overall, Ivory Coast’s gold production had been exploding: Fraterne Matin, the country’s state-owned newspaper, reported total production of almost 7 tons in 2009, a 142 percent increase from 2.87 tons in 2008.

However, current total tonnage still only represents a fraction of global supply. Ghana produced an estimated 100 tons in 2010, making it the leading African producer of gold, according to a US Geological Survey report. (For context, the US produced 230 tons in 2010; China produced 345.) Although Angovia and Bonriko have scaled back, others, such as Rangold Resources’ Tangon mine in the northern part of Ivory Coast, has adapted to the country’s continuous strife and expects to hit between 750,000 and 790,000 ounces this year.

Gold mining, geographically speaking, is relatively much more diversified than, say, platinum production. (If any sort of disruption were to hit South African platinum mines, for example, the global supply would be hard hit.) That’s why Ivory Coast remains for now a blip on the total gold mining picture. But with the price continuing to hit all-time highs ($1430 per ounce today), production from African mines will help feed investor demand during times of global economic strife. With several exploratory ventures in the works (not to mention those of their neighbors), and reserves of iron, nickel, cobalt, manganese and bauxite, Ivory Coast could play a much bigger role in the decades to come.

–Taras Berezowsky

An article in Mineweb last week reported that silver imports in India had dropped off dramatically this year and suggested the high price may be to blame. Silver imports into India from April 2010 to February 2011 dropped to 343 tons from 451.5 tons in the same period of 2010. The largest precious-metal importing region is Gujarat, where nearly 162 tons were imported in January, but dropped over 70 percent in February to 47 tons and were reported by an official of the Gujarat State Export Bureau as reaching on 16 kgs in March, by the 18th.

The price is certainly high, even compared to other precious metals, as this table from ETF Securities illustrates. Silver has risen higher relative to both other precious metals and other commodities than any other asset class.

Source: ETF Securities

Indeed, what this table underlines is that relative to gold, silver has been the preferred investment choice. One of several trends in silver favored among the investment community is silver’s relentless return to form compared to gold as expressed by the gold/silver ratio. As a Telegraph article explains, when gold and silver were used as currency it was recognized that 16 ounces of silver had the same degree of purchasing power as one ounce of gold, creating a 16:1 silver/gold ratio.

Source: ETF Securities

The last time that ratio stood was briefly in the late 1970s; since then, as this graph from ETF Securities illustrates, the ratio has been as extreme as 100:1, and in the more recent past, 80:1, with a long-term average around 50:1.

Like gold, silver has benefited from safe-haven status following unrest in the Middle East, economic problems in Europe and global debt worries. Holdings in the iShares Silver Trust, the largest silver exchange-traded fund (ETF) in the world, increased by 179 tons to 11,140 tons in the week to March 24. Gold holdings in ETFs fell over the same time period.

Does this drastic collapse in physical demand and a breaking of the long-term average ratio to the downside signal an end to the current bull run? It is logical that silver would outperform gold in times of recovery. Its greater industrial use, increasingly in electronics and semi-conductors, benefits the metal in times of upswing, whereas gold favors unrest or uncertainty. But while there are those that question whether silver is gaining something of a bubble status and is due a correction, farther east, physical demand is still strong and may quietly be supporting the market. Since October 2009, China stopped exporting physical silver, and since that time, silver has not dropped in price. Reports mentioned in the Telegraph say China imported more than 100 million ounces of silver in 2010, although is suggests only 2.6 million ounces was as pure silver, suggesting the country is buying up ore and refining domestically. This would explain the widely reported tight mine supply market.

Much will depend on physical buying of pure metal and ores by both India and China in the months ahead. Silver may indeed be due a correction, and like all commodities prices, can only rise so far and so fast before a correction becomes due, but providing Indian demand returns and China continues to consume at current rates, it is hard to see a collapse in the silver price even from these heady levels.

–Stuart Burns

Part One: Investment Plays on the Commodities Boom

Figuring out the best investment plays on the recent commodity boom we’ve been seeing isn’t an open and shut case. There are many different factors to consider; apart from the “what (what metals should I be investing in?), the “why (are metals a safe bet with all the volatility surrounding them?) is just as important. Think of the “tail risks, as some analysts call them, that the world has on its plate right now: first the massive European credit downgrades of the national economies of Greece/Portugal/Ireland etc., then the domino effect of Middle Eastern revolt, then the horrific quake and tsunami in Japan. This triple whammy definitely opens the door to an unforeseen “fog of uncertainty, said ETF Securities senior analyst Daniel Wills in a conference call last Thursday.

Due to volatility inherent in supply disruptions and political unrest, what could mean high prices and higher yields for some could mean headaches for others. Over the past 10 years, commodities as an asset class have consistently yielded more positive returns than real estate, equities or cash. If industrial supply tightens, base metal prices will continue rising. But how much do physically backed metal ETFs have to do with supply constriction?

In following the base metal ETF front for a few months, it appears to us as though the inflows/outflows of physical metal are not overwhelmingly factoring into the global demand and supply equation. Consider the graph below, courtesy of ETF Securities:

Source: ETF Securities

Although industrial metals ETPs have seen increasing dollar inflows over the past four months, the proportion of metals ETPs to the rest (for example, oil and food) is rather marginal. (The graph takes gold ETPs out of consideration, which account for a vast majority of ETF dollar inflows.) From this, can we infer that physical base metals don’t play a meaty part in the supply landscape?

Not necessarily. Although base metal ETF warehouses might be stocking a relatively small chunk of the physical metals on the market, the trend of rising inflows may speak volumes of what speculators, investors and buyers are doing getting their hands on ever scarcer materials sooner rather than later. This is especially true for emerging markets, which are eating up copper, aluminum, nickel and iron ore faster than ever. Add in half a nation (Japan) that must rebuild after incurring $235 billion in economic losses, and the appetite for base metals at least in the short- to medium-term has grown considerably.

Part 2: Speaking of Tail Risks¦

Instead of using gold as a safe-haven asset in the traditional investment context, Libya’s leaders may need it to continue financing their internationally condemned attacks against their own citizens. The concern is leader Moammar Gadhafi may be using his country’s stash of gold to leverage his war costs by getting it outside Libya’s borders (made illegal in Egypt post-revolution so that leaders couldn’t smuggle their wealth out) in exchange for weapons, food or cash, according to the Financial Times.

The International Monetary Fund estimates that Libya’s Central Bank which is under Gadhafi’s control holds 143.8 tons of gold. That translates to roughly $6.5 billion in market value, meaning big bucks that can be used to pay soldiers for a long time.

Gadhafi may have trouble getting anyone to buy or swap for his “conflict gold, but, interestingly enough, the unrest spurred by his military actions continues inflating the price of the yellow metal and hence, the value of his Ëœpersonal stash’ every single day. Should he be able to cash out, the sly fox might be laughing all the way to the bank.

–Taras Berezowsky

Stories and opinions on whether to buy or sell gold seem to be a dime a dozen these days (more likely, it has always been this way), and there’s no better time for a gold rush of this coverage than the climate we have now: First, whole European governments and their economies essentially went belly-up; then protests erupted across the Middle East from Tunisia to Bahrain, upending decades of authoritarian governments; and then to top it all off, an earthquake unlike we’ve ever seen in our lifetimes caused a massive tsunami strike off Japan’s east coast. With stocks and many commodities plummeting, the conversation comes back to gold.

A “For and “Against arena to discuss contentious issues is very popular in the press, and the Wall Street Journal resorted to the method last week to take a look at why (or why not) an investor should consider the yellow metal as part of his/her or their company’s portfolio. The front end of the story (non-story?) was indeed very enticing: we learn that the site of the single largest accumulation of gold is in the New York Federal Reserve’s vaults, that the US in general is the largest holder of gold in the world (8,134 tons; never mind that China seems to be fast catching up), The paper invited two expert analysts, Janet Briaud, a certified financial planner and partner at Briaud Financial Advisors in Texas, and Lewis J. Altfest, chief investment officer at Altfest Personal Wealth Management in New York, to give their takes on the subject.

Even though Altfest teaches at Pace University in New York, we can clearly see by both of their titles (Briaud Financial Advisors, Altfest Personal Wealth Mgmt.) that they’re running they’re own personal vehicles, speaking for themselves rather than a bigger conglomerate. Whether this helps or hurts is beside the point; Briaud makes the traditional case for gold investment (inflation hedge, simplicity of portfolio integration, highly valued by cultures across the globe, etc.), but Altfest’s contrarian viewpoint keys into what matters for us: building things, and the tangible incomes that result.

Even though gold may historically have a negative correlation with stocks or real estate, Altfest maintains that the gold price is nothing more than a speculator-driven show, subject to astronomical spikes and abysmal dives. Sure, it looks pretty as jewelry on one’s hands or neck, but that’s about all it is, he says; income-and-profit production (businesses and their stocks) is key.

“I believe U.S. stocks will do well over the next several years, Altfest writes. “In my opinion, growth in the economy and corporate profits will exceed expectations, boosted by U.S. inventiveness and effort plus large excess capacity in labor and plant. As a result, doesn’t that augur poorly for any investment that moves in the opposite direction of stocks?

Let’s hope he’s right for the manufacturing sector. Whether gold makes its way into a company’s or individual’s portfolio’s or not, the best thing that could happen moving forward is increased industrial demand in housing, commercial construction, and infrastructure both domestically and in emerging markets, driving the need for gold as a hedge down. Last I checked, gold cannot be used to build cars, trucks, ships, bridges or houses, so cannot produce tangible income.

Besides, I need to buy a wedding band; lower gold prices would be awesome right about now.

–Taras Berezowsky

*Please click here to download the MetalMiner Conflict Minerals Legislative Guide, covering the details of the new Dodd-Frank Wall Street Reform and Consumer Protection Act and how mandated audits will affect companies that purchase tin, tantalum, tungsten and gold.


As investors in precious and base metals manufacturers and metal producers certainly among them begin looking toward ETFs as a viable alternative to hedging their metal buys, it may behoove them to look at the recent activity surrounding gold and silver, not only individually, but the trending relationship between the two.

Source: The Economist

Nicholas Brooks, the global head of research and investment strategy for ETF Securities, sounded reasonably sure last Thursday during a conference call that prices, and therefore returns, on the two precious metals are going nowhere but up.   “In today’s environment, with fiscal account and sovereign debt issues, I suspect gold and silver will benefit from that on a medium term basis, Brooks said.

Indeed, investors held their breath as the US and the rest of the international community debated a “no-fly zone for Libya as Col. Qaddafi’s forces and their opponents continue clashing, which not only sent gold higher, but also sent silver holdings in The iShares Silver Trust (the largest silver ETF in the world) to a record high, according to Reuters.

“I think silver is only chasing gold. Some people think silver could reach $100. But I guess it needs to surpass $40 first before hitting a new high,” a precious metals dealer in Hong Kong told the news organization.

The gold-silver ratio has been dropping significantly as silver has continued its streak (although not without its bumps along the way). The spot price of silver — $35.72 an ounce as of Mar. 10 — puts the ratio relative to gold now at about 40:1, dipping below that magic 50:1 mark and well below the average 60:1 that’s been prevalent over the past 30 years or so, writes Brad Zigler from the research-oriented site Hard Assets Investor.

Zigler gives us a refreshingly phrased reminder of the gold-silver ratio’s meaning. “The ratio, which describes silver’s buying power by dividing the per-ounce price of gold by that of silver, has averaged 60:1 over the past 35 years, meaning it’s taken 60 ounces of silver to purchase one ounce of gold. Though with silver’s most recent push to the $36/oz level, it now takes much less.

But there may be a correction point due very soon for silver. “Based upon silver’s outperformance, fueled by investment and industrial demand, there’s still room for some downside for the ratio, he mentions. “Amid the turmoil swirling in North Africa and the Middle East, safe-haven demand for gold could outstrip silver’s industrial-driven demand.

Since silver is much more of an industrial metal than gold, look for other macroeconomic factors — the volatility in oil prices for one, and the reported February trade deficit in China for another as signs that the silver price may indeed force the gold-silver ratio back to a more historical average in the foreseeable future.

–Taras Berezowsky

*Please click here to download the MetalMiner Conflict Minerals Legislative Guide, covering the details of the new Dodd-Frank Wall Street Reform and Consumer Protection Act and how mandated audits will affect companies that purchase tin, tantalum, tungsten and gold.


Several weeks ago I received an invitation to attend an economic forecast conducted by the Executives’ Club of Chicago. Admittedly I dropped my membership a couple of years ago (not sure why), but did enjoy hearing the forecasts provided by folks such as Diane Swonk (Mesirow Financial) and in particular, Jim Rogers. To summarize what sectors each thought looked hot, Diane mentioned “Detroit, referring to the recovering automotive sector, and Jim (very big on commodities) said “the RMB. Jim specifically mentioned agricultural commodities and precious metals as interesting sectors from an investment standpoint, though I am struck by his suggestion that we all trade in our dollars for RMBs. However, we’ll save that commentary for another time.

Nevertheless, Jim appears bullish on commodities when one considers his recent public comments:

“Saudi Arabia has been lying about their (oil) reserves for decades. The reason oil is going up is the world is running out of known reserves of oil.

“Gold will go to $2000 in this decade. It’s pretty simple as far as I’m concerned. Silver will certainly go over $50. The old high on silver was $50. Silver will go to new highs again. All these prices are going to go to absurd levels by the end of the decade, by the end of the bull market.

“Huge bull market in agriculture. Agriculture prices are still extremely depressed on a historic basis. You know, the price of sugar has gone up 600% in the last 6 years, 5 years. It is still 50% below its all time high. 50% below its all time high. The scope for price increases in agriculture is staggering.

So what to make of the news that Glencore (a producer, marketer and trader of major commodities) intends to launch an IPO? Does an impending IPO signal that commodities have largely hit an all-time high and Glencore wishes to “cash-out so to speak near or at the peak, mirroring what Goldman Sachs did in 1999 pre-Dot Com meltdown as the article suggests? Is Glencore following in the footsteps of GE, the first company to sell its call center operations business in India ahead of the curve?

Moreover, does the Middle East turmoil suggest that oil prices will skyrocket once again, opening the doors for another follow-on commodity bust (including metals)?

Finally, should one interpret Glencore’s prospectus as a statement that the commodity super-cycle is dead?

We think probably not, as the original Reuters article also explains in a counter argument. Nearly a year ago, Stuart wrote about a proposed Glencore-Xstrata merger explaining the logic as providing Glencore with much needed cash to pursue mergers and acquisitions.

Despite a potential near-term oil crisis (which may or may not escalate into one), the long-term fundamentals on both the supply side (for many commodities) appear constrained and the long-term demand picture in emerging markets still remains healthy.

In short, we wouldn’t read too much into this one particular deal. Then again, some didn’t think Lehman Brothers crashing signaled much of anything either.

–Lisa Reisman

Rising metals prices are having many ramifications for miners, manufacturers and consumers, but one unwelcome result of rising metal values is also an increase in illegal mining. Just as higher metal prices encourage greater legal scrap generation and recycling, at the same time, it encourages the illegal stripping of lead from church roofs and copper cables from train line and power installations.

Within the mining and refining world, rising metal prices have encouraged a huge increase in capital expenditure and a welcome focus by the major mining companies on organic growth rather than acquisition. But at the same time, the improving returns to be had from rising metal prices have encouraged unscrupulous and even downright criminal elements to invest large sums of money and develop elaborate gangland “ownership around resources in developing countries. Often these resources are in locations too distant for the authorities to readily control what is going on and the consequences, both human and environmental, can be catastrophic.

A more graphic example probably does not exist than the illegal gold mining in the state of Madre de Dios, in Peru’s south-eastern Amazon jungle. Peru is the world’s sixth-largest producer of gold and Madre de Dios ranks as its second-largest gold producing region. While many of the miners are from poor mountainous parts of Peru, local authorities say big private investors from Peru, Mexico, China, Korea, and Brazil have moved in to control illegal mining activities. Tragically, the state of Madre de Dios is also known as the country’s capital of biodiversity. Among tangled vines, giant fig and cedar trees and deep lagoons live more than 200 mammals, 1,000 bird species and 15,000 species of flowering plants, but the illegal mining has left a moonscape of deforestation resulting in widespread soil erosion and poisoned water-filled pits covering an estimated 18,000 hectares.

According to an FT article, the authorities have tried to control mining activities, moving in with force to halt the gangs resulting in the death and injury of several miners. Armed forces blew up 19 river dredges each valued at some $250,000, but 15,000 rioting miners in many cases coerced by the gangs controlling the mines have forced Antonio Brack, the environment minister, to call a halt to the campaign for fear of further casualties. Meanwhile, mercury used in the rudimentary gold separation technology devastated wildlife with levels triple those considered safe in waterways.

In neighboring Colombia, the authorities are facing a similar battle against illegal gold mining that has caused the world’s highest levels of mercury contamination and similar lunar-like landscape of poisoned lakes and soil erosion. As in Peru, poor Colombian miners are controlled by local gangs; peasants employed as miners say they have two choices, illegal gold mining or the growing of illegal coca crops nothing else pays a living wage.

Ignoring environmental degradation for any sustained period can leave a legacy beyond the capacity of the country to repair itself, as South Africa is finding to its cost today, reports Mail & Guardian online. Acid-leached uranium-bearing residues from dozens of gold mine tailings left behind at Witwatersrand Reef from workings up to 100 years old are contaminating ground water and endangering health. Some are so dangerous that local families have had to be moved when radiation levels were recorded at levels higher than the Chernobyl exclusion zone. In fact, the concentration is so high that the ministry for mines has been approached by mining companies keen to re-work the tailings dumps, but, as local environmentalists say, that will result in two contaminated areas for every site, one where the original tailings resided and another where the new dump will be. It is doubtful South Africa will ever be able to afford a full cleanup and will end up with no-go areas around these contaminated tailings heaps.

Unlike Peru and Colombia, the mining in the Witwatersrand was not illegal, but to have allowed the uranium-contaminated tailings to be left in dumps where they could be leached into ground water would be a prosecutable offense today and the legacy of environmental destruction is an illustration of what mercury pollution in those South American mining areas could be creating by way of a legacy for the Amazon.

–Stuart Burns

In supporting that last argument in Part One, it is observed that China is reducing its holdings of US-dollar treasuries — it has been a net seller for the last two months. According to the U.S. Treasury department’s Web site, in November 2010, the country lent the U.S. $895.6 billion, which was down 3.6 percent from the same period a year earlier. “China has shortened all their maturities to less than 5 years and now they are not as strong in the auctions,” argues Chuck Butler, president of EverBank. Speculation is bubbling that the country is shying away from the dollar to make more room for another asset; could that be gold?

But others have poured scorn on the idea. Jon Nadler, senior analyst at Kitco.com, argues that China loves growth too much to switch to a gold standard, and “forget about 8% growth.” If China supports its currency with gold then it will be forced to limit the amount of money in circulation, which could hurt the economy. “This is a far-fetched dream by the gold bugs,” he has said.

Putting the yuan onto a gold standard may not be the intended outcome, though; we would suggest an alternative objective might be to soak up excess liquidity in the economy and hence reduce inflationary pressures. Encouraging citizens to buy cars, white goods and electronics is good for industry, but the rate of growth has been so rapid aided and abetted, one should add, by the stimulus measures introduced by Beijing in the aftermath of the financial crisis and has since largely wound down that it has brought price inflation with it. Raising interest rates and bank reserve requirements has the desired effect of slowing demand, but at the additional cost of raising costs for industry. Giving the population something else to speculate on apart from property prices could be the intent. Nor can we see how encouraging the public to buy gold furthers the aims of a currency reserve standard — India has been the largest importer of gold for many years, most of it bought by the general public, yet the rupee is a long way from the front runners as the next reserve currency.

Whatever Beijing’s intent, it has undoubtedly supported the gold price over the last year and that policy is, like so many other metals, likely to impact gold prices this year and next to an even greater extent.

–Stuart Burns

MetalMiner and its sister site, Spend Matters, along with Nucor, will host a live simulcast, International Trade Breaking Point on March 1, 2011. If your company sources products from overseas, you will not want to miss this half-day event:

Register for the live simulcast today!


Just why are the authorities in Beijing so actively supporting widespread purchases of gold and financial gold instruments? China has also been telling its citizens to buy gold, promoting different gold funds, giving investors access to overseas products and launching a global gold contract based in yuan by the Chinese Gold & Silver Exchange. On the face of it, this seems like a strange position to take; at the very least we have come to expect governments to be neutral on their citizens’ investment choices, sometimes downright negative such as raising interest rates to dampen property or stock market bubbles, but rarely so overtly supportive towards investing in speculative and volatile commodities. One has to ask: what would the social fallout be to a collapse in the gold price, and would there not be some resentment in being so aggressively encouraged to buy?

China’s desire for gold is not solely reserved for the man and woman on the street. According to a Reuters article, gold imports into China soared in 2010, turning the country, already the largest bullion miner, into a major overseas buyer for the first time. The same article said China imported 209 tons of gold in the first 10 months of last year, versus 333 tons by India for the whole year, making China second to India the largest gold market and accelerating fast enough to take top slot this within a year or two. The US by comparison bought 233.3 tons.

Theories abound as to why China is buying gold both for its central reserve (which now stands at 1054 tons, or about 1.8 percent of it central bank reserves), and encouraging its citizens to hoard gold as well. The front-runner is that China is on a drive to have the yuan accepted as the world’s reserve currency and amassing gold will improve investor confidence, if you like a return to a gold standard. If that were really the plan, China would have a profound impact on the gold market. As TheStreet.com points out, China holds $2.85 trillion in foreign reserves, which means the country would need to buy roughly 66,000 tons of gold to fully back its currency. Even if the country raised its holdings to just 3 percent, the country would need to buy 1,000 tons. The article goes on to point out that technically, a full gold standard isn’t an option. Under the IMF’s first amendment to Article IV of Agreement, ratified in 1978, participating countries are not allowed to peg their currency to gold, but that doesn’t undermine the attraction of carrying large gold reserves as an expression of solidity.

(Continued in Part 2.)

–Stuart Burns

MetalMiner and its sister site, Spend Matters, along with Nucor, will host a live simulcast, International Trade Breaking Point on March 1, 2011. If your company sources products from overseas, you will not want to miss this half-day event:

Register for the live simulcast today!


While there’s considerable focus on silver regarding what returns it can gain as an investment asset and as a hedging tool both valid applications, amidst sovereign debt risks and currency devaluations it’s helpful to zero in on the fundamentals of silver and how it plays next to gold, its precious cousin, and the more industrial-focused platinum and palladium. In light of China urging its citizens to buy gold (more on that key topic in a two-part series from Stuart on Monday), where does silver stand in all of this?

If there’s anything to say of silver’s performance in the ETF market, it’s all good. According to Bloomberg data compiled up to Feb. 11 and presented by ETF Securities in a recent presentation, silver has outperformed most of the other precious metals, key commodities such as Brent oil and equity benchmarks like the S&P. In terms of spot returns, the one-week return for silver stood the highest at 3.1 percent, compared to gold (0.7%), platinum (-1.7%) and palladium (-0.4%). The 12-week returns for silver stood at 91.9 percent, second only to palladium (94.5%).

Back to the fundamentals, however: investment and industrial demand, although playing off each other in different directions through the years (as the graph below shows), may be at odds with supply of the metal the rest of the year and beyond. (Just today in London, the silver spot price broke $32 per ounce, a 30-year high.)

Source: GFMS, compiled by ETFS

Although Will Rhinds, head of ETFS’ US operations, recently told MetalMiner in an interview that he sees no noticeable shortage of silver. “If people believe the mine supply of silver will fall this year, then some people can extrapolate that into something more extreme, he said. “But from our vantage point, we don’t see any signs of a visible shortage.

At first blush, that could seem to be at odds with the most recent outlook, presented by ETFS senior analyst Daniel Wills, who pointed out the relatively steady 2 percent growth of silver mine production from 2000 to 2009 may not be enough to offset the 86 percent decrease in above-ground stocks in 2009. Granted, Wills spoke based on data trends through 2009, while Rhinds may have more recent insight.

Source: GFMS, compiled by ETFS

Whatever the supply situation at the current moment, it’s inevitable that we’ll be seeing unprecedented broadening of the silver demand spectrum beginning this year, if the above graph of demand sources is any indication, going by Wills’ conclusions. With high inflation concerns across the globe and sovereign debt risk in Europe (but let’s not count out Japan and the US as well), and with miners increasingly looking to hedge their metal buys, this period may make for an interesting silver environment. (The gold-silver ratio dipped below its 50-year average at the end of 2010 the last time it was that low, Reagan was in office.)

–Taras Berezowsky

*For a much broader picture of the silver and gold investment environment, you can attend a free conference: Phoenix Investment Conference & Silver Summit on February 18-19, 2011.

Details contained in the referenced link.

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