With the Silver Price Low, Demand for Physical Silver Sets a Record

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It's like Money Morning Global Resources Specialist Peter Krauth has been saying: A low silver price doesn't scare away investors; it draws them in.

Silver priceAs silver prices slumped 36% in 2013, retail investors took advantage of the dips and sent physical silver demand up 13% to an all-time high, according to World Silver Survey 2014.

Released Wednesday by the Silver Institute, the report showed the main driver of last year's robust silver demand was individual purchases of bars and coins. Add in a solid recovery in jewelry and silverware fabrication, and retail silver demand rose a whopping 76% in 2013.

Worldwide identifiable investment demand, which includes physical bar investments, coins, and exchange-traded fund (ETF) inventories, climbed 27% in 2013 to reach a three-year high of 247.2 million ounces.

Demand for physical bullion bars more than doubled last year, hitting a high of 127.2 million ounces. Purchases of silver coins and medals surged 38% to a record 118.5 million ounces. Silver ETF holdings increased a modest 48 tons. In contrast, gold ETFs experienced sharp outflows of 880 tons in 2013.

Gains in jewelry fabrication, up 10%, were attributed to an improving global economy. Global silverware fabrication meanwhile jumped 12% to a three-year high, buoyed by healthy gains in India and China.

Total physical silver demand reached a record 1,081 million ounces. Industrial application, the largest component of physical silver demand, slipped less than 1% to 586.6 million ounces, for 54% of total physical demand.

Spot silver ended 2013 at a bargain price of $19.50 an ounce.

"There's been a view in the market that sub-$20 silver is actually quite a good value as a lot of retail investors have this physically important $20 level in mind," Andrew Leyland a GFMS analyst told Reuters.

Not all industries saw an uptick in silver demand last year. Photography demand dropped 7% in 2013, the slowest percentage decline in nine years. And scrap silver demand slipped 24%, the largest drop on record. The decline took supply-side silver down to its lowest level since 2001.

Still, it was a stellar year for silver demand.

While overall industrial silver demand was a tad lower, gains were logged last year in these key Asian nations...

Fueled by an ongoing recovery in the electrical and electronic sectors, coupled with gains in the Chinese ethylene oxide (chemical) industry, silver industrial demand rose 3% in China. Japan also saw gains, taking total Asian industrial demand to a new high, according to the report.

The report shined a bright light on what was a difficult year for precious metals in general.

Indeed, gold tumbled 28% in 2013, ending a 12-year bull run. Silver prices fell a painful 36%. Nonetheless, the average price for the white metal in 2013 was $23.79, the third-highest nominal average price on record.

"Silver seems to have retained a lot more loyalty than the other precious metals," Leyland noted.

After hitting a 30-year high of $49.51 an ounce in 2011, silver prices have been in retreat. Yet loyal retail investors remain enamored.

Wednesday's report sent silver prices handily higher. July silver settled the session up $0.23, or 1.2%, to $19.78. That was the highest settlement for a most active contract since April 15.

The World Silver Survey wasn't the only big news for silver investors yesterday...

Big Upcoming Change in the Silver Market

London Silver Market Fixing Ltd., responsible for setting the silver fix, announced Wednesday the end of the benchmark.

Come Aug. 14, London's silver price fix will be set for the last time in 117 years. Investors, consumers, and industry users will have to rely on a new way to price the white metal for the first time since 1897.

As The Wall Street Journal noted, the silver benchmark plays a critical role in the $30 billion a year global silver trade. The fix affects jewelry prices and earnings of mining companies and helps determine the value of some derivative contracts.

The end of the silver fix comes as authorities, including the Commodity Futures Trading Commission and the U.K.'s Financial Conduct Authority, have been investigating the manner in which silver prices are set.

News of the fix's demise left those who rely on the benchmark scratching their heads.

"It's all very well to say there will be no fix after a certain time, but we need to know what happens next," Ross Norman, chief executive of London-based bullion dealer Sharps Pixley, told the Journal.

One possibility involves the CME Group Inc. (NYSE: CME) establishing its own silver fix. Other scenarios include an electronically derived benchmark calculated and published by a brokerage or other exchange.

NOW: U.S. Global Investors CEO Frank Holmes explains the four main drivers behind the tremendous growth of China's gold market.

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