Commodity prices move sideways today. The front-month WTI crude contract stabilizes after dropping for 5 days. However, it remains at the widest discount to corresponding Brent crude oil. Gold pulled back after climbing over the past 2 days with silver following its coattail.
Silver continues to outperform gold recently. After a brief recovery in January, Gold-to-silver ratio resumes the downtrend and has plunged to 45.17, the lowest level since 2006, yesterday. Look at the charts, both gold and silver appeared to have found a near-term bottom in late-January. However, the recovery in gold price has been modest when the rebound in silver has been much stronger. Investors are interested in the metal due to its dual safe-haven and industrial metal characteristics.
In the near-term, silver's movement will be determined by investment demand. While silver holdings in ETFs have stayed at the lowest level since last November, physical demand remains strong. The US Mint reported that its coin sales reached a record of 200 tons in January and sales have reached 28 tons so far this month. In the longer-term, fundamentals will take the driver's seat again. It's true that the demand/supply balance is not a positive story for silver in coming few years. The steady decline in traditional silver fabrication, especially in the photography sector, over the past few years has pushed the market into a structural surplus. However, new applications and rising demand from emerging markets should gradually erode the surpluses.
Usage of silver in solar cells is a shiny star. Production of silver-containing crystalline silicon photovoltaic systems accounts for a market share of around 80%. Industry experts expect this sector could purchase up to 1700-2000 tons of silver by 2012.
According to Solarbuzz, solar electric energy demand has grown by an average +30% per annum over the past 20 years against a backdrop of rapidly declining costs and prices. This decline in cost has been driven by economies of manufacturing scale, manufacturing technology improvements, and the increasing efficiency of solar cells. That said, cost is still an issue for many countries and the key is whether there are government incentives for photovoltaic systems. Solar energy has been increasing popular in many countries. In emerging markets, China and India plan to increase solar capacity to 30GW and 20GW by 2020, respectively.