Precious Metals

Silver’s ability to efficiently conduct electrical and thermal energy makes it a key raw material in solar energy applications. Recent reports show that the future of silver demand may be in part tied to the development and growth of the clean tech and renewable energy markets.

By Melissa Pistilli—Exclusive to Silver Investing News

The price of silver has spent most of early August in decline on weak global economic data and the financial woes of the US and Europe, which have fuelled fears of slowing industrial demand for the metal. Another concern pervading the markets as of late is the risk of higher inflation in China stalling economic growth in a country which, along with Brazil and other developing countries, helped pull the global economy through the latest recession.

At Monday’s opening, silver was trading at $39.40 an ounce, up over .30 cents above Friday’s close, while gold had fallen nearly $12 from Friday’s closing price to $1734.50 an ounce in New York after last week’s newly imposed margin calls by CME Group. However, gold did manage a big turn around later in the session for a close of $1767.20 an ounce and silver closed up 2.18 percent on the day to $40.02 an ounce.

The return to risk appetite seen in the improved numbers across global stock markets Friday and Monday has improved the outlook for silver as an industrial metal, helping to buoy prices despite losses in safe haven gold.

Bullish optimism in the commodities markets

The price of silver is as much tied to its role as an industrial metal as to its appeal as a safe haven asset, making it essential that silver investors factor in the short- and long-term outlook for commodities and the industrial sector.

Despite apprehensions that we may be on the verge of another recession, there is a pervasive optimism that, over the long-term, demand from developing nations for industrial, agricultural and energy-based commodities will be able to support growth in the global economy.

“I’m a believer in global growth,” said Walter “Bucky” Hellwig at BB&T Wealth Management. “Given the supply constraints that exist across the wide range of commodities, they are attractive, if you are betting on global growth.” Hellwig helps manage $17 billion at the Alabama firm.

The Silver Institute shares this optimism and forecasts a 36 percent increase in industrial demand for silver from 487 million ounces in 2010 to 666 million by 2015, with help from economic growth in Asia.

Emerging energy markets fuelling silver industrial demand

Although investment markets over the past few years have been taking up a larger piece of the pie in terms of demand for silver, industrial applications are still the largest market for the metal, rising from 349.7 million ounces in 2001 to 487.4 million ounces in 2010.

Currently, industrial demand for silver accounts for 50 percent of total demand, but due to growth in several new applications that figure is expected to rise to 70 percent over the next decade, according to The Silver Book, a bi-annual research report by ABN Amro Bank and the consultancy VM Group.

Silver is the best metal in terms of light reflection, heat transfer, electricity conduction and is also a great lubricate, catalyst and alloy. Its properties make it suitable for a wide range of applications in the industrial sector, especially in the electrical and electronics industry, which according to GFMS is responsible for the “largest share [of] global silver industrial fabrication.” Demand for silver from this sector hit a record high of 242.9 million ounces in 2010.

New and advanced energy technologies, especially in the field of solar photovoltaics, are helping to fuel this rising demand.

Silver’s ability to efficiently conduct electrical and thermal energy has made it a “key raw material” in solar energy applications, says the Silver Institute, tying the future of silver demand in part to the development and growth of the clean tech and renewable energy markets.

Both the US and Asian markets for solar photovoltaic applications are expected to experience remarkable growth in the years ahead, says solar energy market research group Solarbuzz. The US market, which currently accounts for 5 percent of the global market, is expected to reach a 12 percent share by 2015. Demand from Asia Pacific markets — which include China, Japan, India, Australia and South Korea — is projected to grow from 11 percent of total demand to nearly 25 percent by 2015.

“The rise in solar power is arguably the most significant development for silver demand in recent years,” said research consultancy GFMS in a recent study commissioned by the Silver Institute titled, The Future of Silver Industrial Demand. “This year, demand is expected to reach nearly 70 million ounces, an increase of around 40 percent year-on-year.”

”As the sun increasingly is used as a source of energy, silver, because of its intrinsic properties, will have growing importance in the design and construction of solar energy installations,” said the Silver Institute in a recent statement. The white metal’s use in photovoltaics could double from the 50 million ounces consumed in 2010 to over 100 million ounces by 2015.

Silver price outlook strong

Rising demand for silver from traditional as well as emerging industrial sectors is bound to have a significant impact on silver prices over the medium- to long-term.

Silver market expert David Morgan, founder of silver-investor.com and editor of the Morgan Report, sees silver rallying in Q4 2011 with a medium-term price of at least $45 an ounce. The silver guru has also predicted that silver could reach $100 an ounce in the long-term, based on rising industrial demand.

Silver Investing News readers are also confident silver prices will rally in Q4 2011. As of Monday, over 26 percent of the 1,004 readers who responded to last week’s silver price poll projected a Q4 price range of $40 to $45 an ounce, while nearly 45 percent see silver trading in a range of $45 to $50 an ounce or higher in the same quarter. Over 17 percent of respondents said that silver will break $100 an ounce before the end of the year.

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