Silver Demand Rolls On

I'm probably not the first person, nor will I be the last, to show you that silver demand is probably the key to silver prices exploding. About two thirds of this demand comes from industry.
The rest of demand comes from jewelry and recycling. Investment represents a very small portion of the demand for silver.

Industrial Demand

Unlike gold, silver is an industrial commodity. The basic scientific properties of silver make it a candidate for use in an ever-growing variety of devices and applications, from computer chips to solar power generators.Because silver is an industrial commodity, it is a candidate for an industrial shortage. The world’s industrial consumers hold little in the way of silver inventories, thanks to just-in-time inventory and production practices.
As we’ve discussed elsewhere on this site, 70% of silver production comes as a byproduct to other types of mining, such as copper, lead and zinc. The mining industry is simply incapable of keeping up with the current demand for silver.



Given that we already have a widespread retail silver shortage, a wholesale shortage is likely as well. When industrial users face delays in silver shipments they will panic and attempt to build inventories all at once. This situation unique to silver—it does not apply to gold.
In the current financial crisis, there is a profound and very powerful advantage to silver being an industrial commodity. The mainstream has forgotten about silver as a monetary metal. The new generation, and possibly even you, has only a fleeting association between silver and value.
However, in the face of declining dollar values, and as the supply/demand characteristics of silver become more widely understood, more and more people will begin to discover how you can't go wrong with silver rounds, silver eagles, or 90% (junk) silver. As stated before, silver demand is negligible, yet growing, for investment.

Demand for jewelry could easily switch from gold as gold prices move higher (which is likely, but for other reasons). Industrial demand, no matter what happens with the dollar, will continue to use more silver than is being produced.

You can investigate the supply-side argument here

Also, read about why silver demand fundamentals will cause prices to diverge from gold here.

Price Manipulation

This will not just take place here in the U.S., but everywhere, and especially in the BRIC nations. Some say we will see a global slowdown or transfer of wealth from West to East. This would also drive up commodity prices as these places demand fuel for growth and therefore increasing overall silver demand. 


















The motivation to manipulate silver prices will not cease under these circumstances, but the ability to do so will be diminished—most likely when industry players realize a shortage. It’s likely that they will hoard all the way into to the hundreds per ounce.
In fact, perhaps this is already happening, as evidenced by silver eagle shortages and a general scarcity of physical investment silver. Again, the key is that industrial silver demand is inelastic, but the world simply does not produce enough silver to keep up. A shortage will wipe out any remaining ability to manipulate prices by keeping shorts significantly under water.
The inevitable spike in price may very likely cause default in the silver futures markets, which will add volatility to the explosion. Today's silver prices will look unbelievably cheap.