Silver Enjoys Record 2011, Optimism For 2012

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on April 19 2012 9:02 AM
Silver bars
Silver used for industrial production is expected to rise to a record 511 million ounces by 2014 following a two consecutive years of decline. More than half of all silver is used in industrial applications, from automobiles to polyester. Reuters

Silver enjoyed a record 2011, as investors turned to physical bars and coins of the precious metal to piggyback on a strong year for gold, according to The Silver Institute's World Silver Survey 2012 released on Thursday.

The metal posted a record-high average price of $35.12 in 2011, a 74 percent jump over the previous year's $20.19 average price. Investors turned to physical silver to the tune of $10 billion-worth, or 282.2 million ounces, also a new high.

Buyers sought out the metal in physical form, with silver bar investment jumping 67 percent to 95.7 million ounces, with coins and medals fabrication increasing nearly 19 percent to a new high of 118.2 million ounces. The United States and Europe led among silver hoarders, while increasing demand in China accounted for an almost 60 percent rise in its bullion coin output.

The overall supply of the metal fell to 1.03 billion ounces, down from 3 percent from 2010's 1.07 billion ounces. Coupled with a modest 1.4 percent gain in silver mine production, as well as ongoing global economic calamity, the environment was primed to produce record high prices, according to Philip Newman, the Silver Institute's Research Director.

Silver can behave as a safe haven, he said. In China, it acts an inflationary hedge.

Hoarders aside, demand for silver from other sectors fell across the board, with industrial applications falling to 486.5 million ounces, from 500 million ounces in 2010, driven largely by a slowdown in the Eurozone, stymied demand.

New uses for the metal appear promising, but none contain the high-quantities of silver needed to significantly move the market, Newman said. Industrial demand took a substantial hit when the market for photovoltaic panels tanked, as high output led to a glut in supplies and eventual slowing in demand.

We treated it as a new use of silver, he said. We haven't seen another use which has shown the signs so far of replicating (photovoltaic). In other cases, the amount of silver consumed per device is so minute, we're talking nano.

Demand for jewelry overall fell to 159.8 million ounces from 167.4 million ounces the previous year. Though the drop was largely fueled by a weak global economy, the U.S. holds a particular affinity for silver, which saw a lot of sterling silver jewelry substitute karat gold, Newman said.

The institute expects the price of silver to continue rising, especially in the latter half of 2012 when measures to shore up the global economy such as quantitative easing, are expected to be enacted.

There is perhaps a little more optimism out there, Newman said. There's a little uncertainty in regards to Europe. We think that investors will see a return of precious metal investors this year. It could reach $40.

Silver for May delivery on the Comex fell 19 cents to 31.49 on Wednesday.

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