Despite the fact that it often seemed as if the fundamental and the technical aspects of the precious metals market were at war with each other, silver bull David Morgan believed both methodologies could be used to great benefit.
“These are not dead markets and based on research and experience, the biggest precious metals price move is ahead of us,” he told investors attending the Cambridge House International Vancouver Resource Investment Conference 2015.
Morgan pointed to rising precious metals demand, specifically for gold, from Asian countries such as India and China, which were setting the stage for the next chapter in the precious metals story.
He noted that investment demand for gold had risen significantly in India in recent years, as people who traditionally invested in more accessible silver, made the switch to gold as the population became increasingly affluent.
Despite this, silver demand also remained robust. This contributed to the significant trend of gold bullion moving from the West to the East. He said the most productive economies were the ones most likely to accumulate gold, as was evident with China currently aggressively buying gold. The country currently held about 20% of the global gold reserves.
Asia and China accounted for more than 52% of the global gold demand, after Hong Kong significantly started to lift its gold imports into the country. This started just after the gold price peaked at $1 921.50/oz on September 6, 2011.
This trend today continued unabated. According to Morgan’s data, physical gold holdings comprised about 3% of the total wealth in all asset classes, or about $33-billion out of $962-billion in total assets.
He expected the Shanghai exchange to become the new gold exchange of the world, much in the same way as the LSE had dominated the scene over the past several decades. Other metals were also expected to follow suit.
Morgan believed that the geographic shift might be a good thing, as Shanghai tended to be more transparent in its price setting than its Western peers. GREY MATTERS
Morgan, who has a penchant for silver, said the metal had not seen a lot of demand from professional investors in recent years and pointed out that it would be interesting to see how the markets would react if somebody took a significant position in the current milieu.
He said the $14.15/oz intraday low silver recorded in November was probably the bottom of the cycle for the grey metal, signalling the gradual and inevitable uptick in price. Dramatic low-price spikes were tell-tale signals that the price was possibly about to start an upward trajectory once more.
In 1980, the silver price rose to a peak for modern times of $49.45/oz owing to market manipulation by Nelson Bunker Hunt and Herbert Hunt. Inflation-adjusted to 2012, this would be about $138/oz.
Meanwhile, silver bullion sales had taken off. Sales of the top three silver coins, the American Silver Eagle, the Canadian Maple Leaf and Austrian Silver Vienna Philharmonic coins had grown from about $36.18-billion in 2008 to $85.78-billion in 2013.
Silver imports into India were also gaining traction once more, Morgan noted. Further, global silver output was on the rise, growing from about 600-million ounces in 2004 to almost $800-million in 2013. Most of the additional output stemmed from by-product output in the gold industry, at a ratio of about 10:1, as well as a significant rise in primary silver output.
Morgan said peak silver output had not yet been reached, although the industry was not far from it. Scrap supply was expected to remain at about 200-million ounces a year.
Adding to the strong fundamentals for the metal, technology was continually finding new uses for the metal in a swelling spread of applications, spanning diverse industries.
The photovoltaic (PV) industry, for example, had in recent years pushed demand for the metal up by a significant margin. However, as the steady march of innovation waits for no one, the use of silver in PV had also in recent times been economised, somewhat mitigating the demand impact the green technology had on silver.
