Why are investors so gung ho on silver? Well, a number of factors have investors pushing silver to multi-decade highs. We talked about them in past articles… inflation hedging, industrial use, and silver coin investing. But you can roll all those factors into one… its simple supply and demand.
Silver supply is dwindling…
Accurate figures for above ground silver stockpiles are hard to come by. There are a few estimates, but most vary wildly. However, experts agree above ground silver inventories are extremely low. The majority of silver is already used up or still sitting in the ground waiting to be mined.
Of course, miners are ramping up production to take advantage of high silver prices. And they’ll likely be able to slowly increase supply in coming years. But right now, demand is far outpacing supply for the illustrious metal.
In fact, the market is so tight that silver futures are in “backwardation”.
This unusual word essentially means the market is worried about near term supply. Near term futures contracts are priced higher than outlying contracts. Backwardation is a rare occurrence, but it’s happening right now in silver.
Silver has broken the important technical area of $35/oz, it can now become a major technical support. What’s my ultimate price target for silver? Putting a price tag on future silver prices is pretty challenging. Some estimate $70-$100 an ounce, while others have grandiose ideas of $1,000 for an ounce of silver. While I think $1,000 is out of the question, $50 to $70 is very possible.
How long will it take it to get there? Well, if recent price movement is any indication, we may hit $50 by the end of this year.
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