Chinese eyes sparkle over silver

Tom McGregor

Gold usually enjoys the spotlight in the metals market. The precious metal is considered a safe haven to purchase when the global economy faces a slowdown or amidst political turmoil. Meanwhile, silver frequently gets overlooked.

However, demand for silver has gotten more alluring for Chinese investors, and some metals experts have forecast a renewed silver boom in the country.

The Beijing Antaike Information Development Co, an information center on the Chinese metals and industrial markets, has recently issued its report on silver prices. Analysts forecast that China's silver demand could rise by as much as 10 percent in 2013.

"Where's the demand for silver coming from?" According to Resource Investor news website, "around 33 percent is from jewelry and coins, with the remainder in use for photography, solar and electrical appliances, said Antaike analysts."

Related: Silver demand expected to jump 10% in 2013

Resource Investors added, "this is a record level for Chinese silver demand - and good news for silver investors, since China is the world's second biggest user of the metal."

China's enthusiasm for silver surged to higher levels of excitement. Yang Guohui at Hunan Yishui Rare & Precious Metals Recycling Co told Bloomberg earlier this month that, "I'm bullish on silver, so I personally have stockpiled three tons at home."

Some Chinese investors have begun to place their bets on silver rather than with gold. Silver is much cheaper and plays a more pivotal role in the economy as essential component elements for the manufacturing of electrical appliances.

Retail sales of silver jewelry have risen in popularity too. Shi Heqing, Antaike analyst, disclosed in his report that silver jewelry in the country had jumped 19.3 percent during the first eight months as compared with the previous year.

Shi forecasted that silver's demand could rise to 7,700 metric tons next after witnessing a 6-8 percent increase in 2012.

Strong consumer demand for silver jewelry appears sustainable since there's a growing middle class in the country and Chinese consumers have larger disposable incomes while shoppers are getting more accustomed to pay for luxury goods.

Additionally, silver is a necessary ingredient for building solar panels. The world has taken a stronger interest in alternative sources of energy and show greater appreciation for eco-friendly companies. Solar energy reduces China's dependence on coal and oil for electricity use in households, and reduces carbon emissions.

Beijing has set an ambitious goal, shooting for 21 gigawatts of solar-power installation by 2015, which compares with an installation of 2.6 gigawatts in 2011, as disclosed by Bloomberg.

Other factors have sparked rising silver prices. "After the US Fed's QE1, (December 2008 – March 2010) silver rocketed 53 percent almost twice the jump as gold." According to Bloomberg, "and for QE2, (ending June 2011), silver rose 24 percent. Morgan Stanley predicts that silver again will return more than gold after QE3 was announced in September."

The Fed's quantitative easing was intended to create more American jobs, but the nation's unemployment rate has continued to hover at around 8 percent or above since monetary policies were implemented.

The measures have ignited higher rates of global inflation and boom times for commodities markets speculators who trade oil, minerals and precious metals.

The Shanghai Gold Exchange has also experienced large spreads between overseas domestic prices due to government taxes and transportation costs. The spread averages $40 per kilogram, but in May 2011 it had risen to over $200/kg.

Global supply of silver has increased as well. "On the supply front mine production increased for the ninth consecutive year in 2011 to 761.6 million, a modest increase of 1.4 percent, due to gains from the by-product of gold, lead and zinc," according to Angel Broking of Commodities & Currencies news.

Therefore, silver miners have increased supply while selling at higher prices. Yet sooner or later price parity would return. Rising supply cannot sustain higher prices for the long term despite rising demand from China. This would be something for silver investors to ponder in the years ahead.

The views do not necessarily reflect those of China Daily.

McGregor@chinadaily.com.cn

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