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Silver Prices to Hit New Highs in 2010
Marc Davis, BNW Business News Wire
Silver may yet outshine gold in 2010 as spot prices for the
white metal respond to the prospect of a surge in industrial demand. With a
little additional help from investment demand, silver may even rally into the
So says Chintan Parikh, a commodity analyst at the CPM Group – a leading New
York-based commodities research, consulting, asset management and investment
“Prices may spike as high as $25,” he says. At the very least, it should breach
its most recent high, which was set at $20.79 in the spring of 2008, he adds.
Parikh says much of this impetus for higher prices is being driven by the fact
that traditional industrial end users of silver, such as the ever-burgeoning
global electronics industry, have in recent weeks begun to replenish severely
In fact, silver inventories became so run-down during the financial crisis that
it may take up to six months to fully rebuild them to normal levels. Parikh also
notes that demand from the industrial sector tends to be quite price inelastic,
meaning that buyers have few options other to pay prevailing prices.
Another key driver for 2010 will be the advent of new market places for silver,
including pent-up demand for silver-zinc batteries in ‘smart’ automobiles and an
array of portable electronic devices, Parikh says.
In fact, the widespread adoption of silver-zinc batteries is going to be “one of
the major drivers behind a rise in prices because it may absorb a lot of
silver,” he adds. Though this important new application for silver might not
necessarily become a major factor in demand for silver as early as next year, it
promises to become a very sizeable marketplace, he suggests. And especially for
Notably, China is forecast to become a huge adopter of electric cars to curtail
its rising dependence on foreign oil and to reduce its air pollution. In fact,
electric cars and hybrid plug-ins will account for more than half the auto
market in China by 2020, according to Dr. Wolfgang Bernhart, an auto industry
expert with the international think tank, Roland Berger.
Furthermore, silver-zinc batteries are destined to generate major market share
as they are said to be much safer, more environmentally-friendly and far more
energy-efficient than lithium-ion batteries (which currently dominate the
markets for smart cars and portable electronics).
Also, the ever-expanding industrial sector for silver now includes LCD/plasma
television screens, solar panels, water purification and even medical and
superconductivity applications. It is also finding a critical new use in
biocides (which use silver in chemical agents to kill dangerous bacteria,
GFMS, a renowned London precious-metals consulting firm, concurs that overall
fabrication demand (which also includes the photography, jewelry silverware
sectors) is expected to rebound to “normal levels” in 2010. And the emergence of
key new markets for silver is sure to help power this recovery, according to
Neil Meader, research director at GFMS.
“It is becoming an increasingly industrial metal and novel new uses will also
likely assist the recovery in silver’s demand,” he says.
However, the restocking of inventories for more of silver’s traditional uses
will likely be the most powerful demand driver in the near-term, Meader
suggests. It may even help propel silver prices into new territory to the extent
that “a peak (in prices) could occur late this year or early next year.”
The revitalization of industrial demand is an inevitable consequence of silver’s
growing importance as a high tech metal. In fact, this has grown year on year
since 2001 to the onset of the financial crisis. And it only dipped a meager
1.4% to 447 million ounces in 2008.
This long-term growth trend is set against a backdrop of a multi-year rally in
silver prices during this time frame, with gold’s poorer cousin refusing to be
upstaged. It actually tripled in value to average US $15 in 2008 (in spite of
its short-lived collapse to around $9). And it is continuing to trend higher
this year now that supply/demand dynamics are beginning to reflect a return to a
normal economy. All of this clearly demonstrates the price inelasticity of
Ironically, investment demand is also mostly shrugging off higher prices. Not
only is there strong physical demand for silver bullion coins and bars, but the
recent emergence of silver exchange-traded funds like the iShares Silver Trust
is also creating strong additional demand.
Parikh notes that silver offers a safe haven in times of economic upheaval,
while it also has the potential for significant investment returns.
“Silver is a unique metal that wins whether the economy is going well or is in
bad shape,” he says. “In the latter, the investor buys it as a hedge against the
downturn in the economy and the markets. And if the economy improves, then the
industrial demand increases.”
All of this is music to the ears of silver miners, who are already ramping up
production to satisfy newly resurgent industrial demand for silver. One company
on the frontlines of this push for greater output is Vancouver-headquartered
Great Panther Resources (TSX: GPR), which has been operating its Guanajuato and
Topia mines in Mexico since 2006.
Notably, Great Panther is one of only a small handful of companies in the world
that are primary silver producers, since the vast majority of this precious
metal comes as a by-product of mines that are mostly focused on extracting lead
and zinc or copper.
Company President Bob Archer says that he believes that higher silver prices
next year will significantly boost the company’s ever-improving bottom line.
Great Panther became cash flow positive earlier this year after producing 1.8
million silver equivalent ounces (silver plus by-product metals, including gold,
lead and zinc) in 2008.
Archer has now set his company’s sights on generating over US $50 million in
revenues by 2012 (based on a projected output of over 2.6 million silver ounces
and 12,600 gold ounces, as well as minor base metals credits which translates
into 3.8 million silver equivalent ounces).
“Our output is growing steadily. We just had our best quarter ever in the third
quarter of this year. And we’re in the process of completing a $10 million
equity financing to accelerate our three-year growth strategy to capitalize on
higher silver prices.” Archer says.
“In fact, we’re quite bullish on silver prices for 2010. I believe that
investment demand will be the biggest driver for higher silver prices next year.
That said, I’m sure there will also be an increase in industrial demand going