What to look for in the last month of International trading in Silver?

December 2, 2013

New Delhi-India  (Dec 2)  Silver is showing all the classic signs of a structural bull market. Demand to buy silver amongst Indian households has pushed the country's imports to twice last year's level and may set a record in 2013.

The U.S. Mint has already broken its annual record for silver sales — and we still have a month to go! The US Mint confirmed a record year for sales of silver coins– and we still have six weeks in the year to go. Yes, the roughly 40 million ounces of silver only accounts for maybe 5% of overall demand, but it also represents a huge increase from a decade ago when it comes to investor interest in physical metal. And demand for silver isn’t just an American phenomenon. Last month, somewhat surprising news came out of India of a roughly 130 million ounces of silver imported into that country in just the first six months of the year. This was mostly in response to the curbs for gold imports imposed to regulate the current account deficit of the country.

Inflation will be increasingly important. As long as the world monetary systems are run by central banks, particularly the Federal Reserve, we can expect inflation in the money supply, debt, and consumer prices. According to the U.S. Labor Department, the annual rate of inflation currently stands at 1.0%, while the Consumer Price Index clocks in at 233.46.

That’s the case for inflation, which most economists see rising (and significantly so) over the next year or two. Historically, creeping inflation usually has anxious investors looking for an edge.


FOMC statements released this month continue to affirm that the deflationary threats from the 2008 crisis remain. The ultra-loose stance of the world’s largest central bank should be of concern to anyone who wonders if inflation might one day get out of hand.

And in India, known as one of the world’s leading gold markets, inflation is already making its presence felt. The Indian central bank continues to raise interest rates while attempting to curtail demand for gold among Indian citizens. There are similarity to policies once adopted by the US government in the late 1960s and 1970s, and how those policies failed to dampen demand for gold as both inflation and interest rates rose strongly.

The global middle class will demand more gold and silver for savings. American and Europe may still not understand the security that gold and silver provides during uncertainty,  but the Chinese and Indians do, and that demand for actual physical metals will grow steadily. The cult of equities is flying high but it may not last. There is room for a shift from equities and bonds to precious metals. Even a small shift in demand away from stocks and bonds could cause the relatively tiny gold and silver markets to rise to new highs.

Although the short-term view on gold remains overwhelmingly negative, prices could start stabilizing at lower levels due to the supply response from the mining sector and other positive factors discussed above and could pose a wonderful investment opportunity for the long-term.

(Source:  Gnanasekar Thiagarajan - Economic Times)

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