Silver in the digital world

One of the most questioned and least understood areas of silver's industrial use is the digital camera arena. The silver bears point to the fact that silver halide film usage is about to wane significantly and after this is realized a major component of silver usage will no longer exist. The bulls on the other hand seem to take a view similar to mine and believe that standard silver halide film will coexist with digital and some impact will be felt but it will not be that significant.

Before I move ahead, I did speak with one of the world's foremost experts on silver halide film recently. According to this consultant to the Silver Institute the digital impact will not be felt for another five years. The area that digital cameras are really growing is the professional journalism market. The picture quality from today's digital camera is perfect for the resolution needed in newsprint. This area is and can be considered to have been impacted significantly by the new technology. The amateur area however has more questions. Several realities have dawn on the public. First, sending photos by email is fun and is a very effective way to enhance our communications. The area of concern is that the print quality is not always sufficient for those prize photographs. For example wedding pictures or the new born grandchild. Many have discovered after printing that the picture fades over time, or is subject to ruin by any noticeable moisture. A new paper industry has grown up around these concerns and many retail outlets sell paper for the exclusive purpose of printing digital photos that will be preserved. The consumer then needs to ask if it is worth the price? If my prints were processed the conventional way I would have higher quality and maybe a lower cost.

The Silver Institute has recently published their newsletter on their site in pdf format. ( Read it here) Quoting from that source.

There are three types of prints being made on silver halide paper, Franz explained. The first, "direct prints from film," includes those prints, or reprints/enlargements made from film. The second type, "direct prints from digital cameras," covers prints made directly from digital images taken by digicams. The third category is "prints made from online storage." All three of these types will result in roughly 112 to 115 billion silver halide prints from 2000 through 2005, peaking in 2003. However, since it is expected that consumers will begin to order more larger-sized prints, silver usage for manufacturing photographic paper will rise slowly over that period as the total volume of paper rises. Silver use in paper will increase from 39 million ounces in 2000 to 45 million ounces in 2005. "In conclusion, while the things we read and hear would lead some to believe that the use of silver in photography is ready to plummet, the reality seems to be that silver usage will continue to increase slowly -at least over the next four years," said Franz.

I now have the preliminary data from CPM group in New York, New York. Based upon their preliminary findings photography usage in year 2001 was 285 million ounces. This compares to 283.2 million in year 2000. I want to emphasize that these numbers are subject to change when the full report is issued in late February. The point is clear however, digital photography did not impact photography usage last year.

Another area that I have spoken about is silvers use in antibacterial applications. During one of my first internet radio interviews on www.financialsense.com, I suggest that I could envision the day where large municipalities would require silver cleanings of the water supply. This may or may not come to pass. My point is one that the bears seem to miss and that is simply that in the information age more that ever before in mankind's history, more and more applications for silver are being discovered. As many who follow my work know, the superconductivity applications could require 50 million ounces per year according to preliminary estimates by the Silver Institute. This new use might replace or surpass the loss due to digital cameras. Again, I would like to make use of the latest report from the Silver Institute cited earlier.

General Electric Company has awarded American Superconductor Corp., Westborough, Massachusetts, a contract as the primary supplier of high temperature superconductor wire (HTS) for the world's first 100 megawatt HTS generator. The entire HTSD project, valued at $26 million, is one of seven recently-announced projects that are part of the U.S. Department of Energy's Superconductivity Initiative program. The generator will use 40 kilometers of HTS wire, consuming more than 1,000 ounces of silver. AmSuper's wire plant is the first such commercial facility in the world and is expected to use 4 to 5 million ounces annually of silver to produce 20,000 km of HTS wire, or about 250 ounces per kilometer of wire, according to Vice President Jeff Nestel-Patt.

I have investigated the use of silver in cold fusion applications because this was hinted at once the Warren Buffett silver purchase was announced. There was an announcement circulating the internet that Mr. Buffett had priority information about silver usage in fuel cells. I have been researching this area, as well as many others ever since. I have addressed this issue but reserve it for my paid subscribers.

Finally, let me wrap up with a current overview of the silver market. This is of concern to both those favoring higher or lower silver prices as we move ahead. One of the many publications I use in my work is Investor's Business Daily. On January 23, 2002 in the Futures section this was printed. "Silver is finished for [the] most part with its London premium," said George Gero, senior vice president of investments at Prudential Securities. " The fact that the silver spreads are pretty much the same--there's no cash-and-carry business--is also hurting silver," he said, referring to the minimal price differences between nearby and more distant futures. Short -term silver lease rates remain slightly higher than U.S. deposit rates, meaning an investor can still earn a small profit carrying silver, assuming no drop in prices. But the underlying fundamentals for silver are poor, with the economy weak and few new commercial uses on the horizon, and traders see the potential for silver to revisit the lows set in November before the squeeze, around $4 an ounce."

I would like to comment on the Under Lying Funny Mentals. As pointed out early in this essay there are significant new commercial uses on the horizon. In fact the Silver Institute newsletter in this issue points to a potential usage of 100 million ounces. The public at large is not aware of both sides of the argument. There are no feature articles in IBD, WSJ, or Business Week about silver and the investment potential. I must confess that my total overall view has not changed. In the very first public article I wrote in October 2000, it was emphasized that my expectations for silver to make a significant increase in price would NOT take place until the physical supply was so very tiny that the derivative market in silver was in extreme peril. I also agree based upon the Commitment of Traders report that silver could indeed see the four dollar level again. Bear in mind that for the most part this is opportunity because currently the derivative price is setting the physical price. Common sense would dictate that the real should take primary importance over something derived from it, but let us wait and watch. As all sports fans know "It ain't over till it's over!"