Once upon a time, the Chinese government forbade ownership of all precious metals.
But now, the ban has been lifted. In fact, China just introduced silver bars for investment. And now, state-run China Central Television (CCTV) is running a campaign encouraging the population to invest in silver.
That means there are over a billion potential new silver investors hitting the market. This is especially significant when you consider the average savings rate in China is 30 to 40%.
But the flood of new Chinese silver investors isn't the only factor driving up silver prices. The increased use of silver in everything from solar cell technology to medicine is pushing up prices as well.
Read on to discover exactly why silver will make savvy investors rich in the year ahead… and find out the one stock to buy now to take your portfolio to new highs.
Chinese Demand for Silver
Take a second to think how much of an impact this will have on the silver market – the sheer amount of people, and at such a high rate of savings.
Then you factor in Chinese demand for things silver is need to make – cell phones, computer, batteries, silverware and jewelry. China's silver consumption already accounts for 70% of the global total of industrial use, and its middle class isn't even close to reaching its spending potential.
What's more, those aren't the only reasons analysts are predicting silver prices can reach as high as $100 this year and $250 by 2015.
This free report outlines all the reasons silver is going to continue its ride to another record. It also gives a handful of ways to invest in silver.
Demoting the Silver-Gold Adage
China's impact on the silver market isn't the only thing catching the attention of silver analysts. The silver-gold ratio tells a compelling story about the price of silver. Put simply, the ratio means how many ounces of silver it takes to buy one ounce of gold. Historically, that ratio has been about 15-to-1. Right now, that ratio is hovering around 59-to-1.
For silver to 'correct' by returning to its long term silver/gold ratio of about 15, gold at $1,000 means silver should be priced at $66 already.
You'd be hard pressed to find anyone who believes that 59-to-1 will hold up much longer because it basically means silver is cheap compared to gold, which opens the door for investors to come in at a good price, such as China. All of China.
More Pressure on Silver Prices
As the global economy expands its size and reach… as technology advances… and as more ways to buy silver becomes available… as silver supplies have dwindled… more factors began affecting the price of silver more exclusively – for better or worse. Some are:
- Silver's Industrial Uses: For decades, silver has been more than a collector's item. It has dozens of uses outside the storage vault. It's used to make currency, jewelry and silverware. Silver is used to produce highly reflective, architectural mirrors. It's heavily used in the medical field as an antimicrobial – a killer of some bacteria, algae, fungi and viruses. In the labs, silver is used in photographic films and as a catalyst in chemical reactions. And more applications are arriving soon, including using silver in photovoltaic cells in solar-power technology and in rechargeable silver-zinc batteries. In fact, silver's use for industry has gone from 35% of total annual production ten years ago to more than 50% today. One source claims that figure is actually 90%.
- Silver Supply/Demand: Supplies of available silver have dropped by 86% in the past two years. Commodities research firm CPM Group says the current amount of above ground refined silver has fallen from 2.2 billion ounces in 1990 to less than 1 billion today. At the same time that supply is falling, demand is rising… especially industrial demand. The pressure on silver prices will get even stronger as individual investment demand (including the whole Chinese market) goes up.
- Silver Market Size: Silver is a less-active and lower-volume market than gold, which means that purchases even by individual investors can make an impact on silver prices. Better said, 100 silvers buyers purchasing the same amount as 100 gold buyers will have a bigger impact on the market. Think how much prices can spike when millions of Chinese investors flood the market with silver purchases. Now, combine that with the global return of industrial silver demand.
Silver Price Projections
Money Morning's Martin Hutchinson believes silver and gold will continue climbing into 2011 and beyond. If enough investor momentum gains – and if China's push for individual silver investment intensifies – he believes silver could peak past $100 either this year or next.
But, that's just the beginning. Silver could top out at $250/oz. in the next five years as global mine production crawls in the face of increasing consumer and industrial demand. That's an increase of over 1,150%.
Bear in mind that silver prices have been moving faster than gold. So those who want to invest in silver better pull the trigger soon, or watch silver's price explode from the sidelines.
The Best Way to Invest in Silver
Like investing in gold, the most popular ways to invest in silver is ETFs, mining company shares and bullion/coins.
As far as ETFs go, silver investors might want to check out ETFS Silver Trust (NYSE: SIVR). The ETF can be bought and sold just like any stock, and seeks to reflect the value and performance of the price of silver bullion, minus the Trust's operating expenses. The ETF is backed by physical silver bullion held by HSBC in London.
But, to really leverage the price of silver, take a look at Vancouver-based Silver Wheaton Corp. (NYSE: SLW).
Silver Wheaton which is perhaps the heaviest hitter in the global silver-mining business. It gets its silver from all corners of the world, from the Aurcana mine in Mexico to the Zinkgruvan mine in Sweden. As silver's price shot up 56% in 2009, Silver Wheaton's stock more than doubled that with a 124% gain. And in that span, the company acquired competitor Silverstone Resources Corp. and entered into several long-term agreements with Goldcorp and other major miners in which Silver Wheaton will acquire silver mined by them. Look for Silver Wheaton to skyrocket as silver prices rise.
Editor's Note: Silver isn't the only commodity in high demand in China. Demand for a substance used in everything from medicines to nuclear bombs already tops production by 16 times… This supply/demand mismatch has doubled the price of this substance in just one year. But the boom has barely even started. Discover the best way to play it (it's not by buying the substance itself) before demand skyrockets even more.
About the Author
Peter Krauth is the Resource Specialist for Money Map Press and has contributed some of the most popular and highly regarded investing articles on Money Morning. Peter is headquartered in resource-rich Canada, but he travels around the world to dig up the very best profit opportunity, whether it's in gold, silver, oil, coal, or even potash.