Silver suffers from investor apathy, weak industrial demand

Hit by a double blow of low investor appeal and weakening industrial demand, the silver price is struggling to regain momentum after plunging to 14-year lows earlier this month. Silver dipped below the $4 level to US$3.97 on Dec. 13 and has been trading in the $US3.80-4 range since.

“I think that silver prices are reflecting the pessimism that the economy is slowing and continuing to slow,” says Bruce Kaplan, president of Kaplan and Co. of New York. “Also, investors are shunning silver because they don’t think inflation is threatening their security.”

Kaplan believes that as long as inflation rates remain stable in the U.S., where silver investment is concentrated, investors are unlikely to view a US$4 silver price as a buying opportunity. “Silver will probably trade in the US$3.75-4.50 range (in 1991),” he said.

Since 1988, burgeoning supply, especially from mines that contain silver as a byproduct, has outstripped demand, sending silver prices on a steady decline, according to analysts at Shearson Lehman and Hutton. Primary silver deposits produce only about 35% of the total silver mine supply.

Although supply is expected to increase by 2% each year over the next decade, fabrication demand is projected to grow by 3.3% annually, according to The Silver Institute’s recently released World Silver Survey.

Most of the increased demand will come from the photography sector, explains Joseph Rosta, an analyst for the CPM group, a New York-based precious metals research firm. Photography already accounts for about 40% of worldwide silver consumption and continues to grow rapidly because of increased personal wealth and leisure time as well as new technology.

Growing demand for silver jewelry in Japan is also likely to continue, although the growth is slowing to some extent, says Shearson.

“The balance between supply and demand will probably be the tightest it has been since the 1970s,” Rosta says.

Total mine production reached 460 million oz. in 1989, while worldwide fabrication demand for the year was 469 million oz.

Canada’s major silver producers’ 1990 production forecast: tons Noranda 386 Cominco 237 Falconbridge 226 Equity Silver 193 Minnova 138