Rastislav Trecák (G&S SOLUTIONS)
Investor's window  |  December 12, 2012 22:52:18

The potential of silver is undervalued

As we all know, people used for centuries as a means of exchange and a store of value two rare and thus precious metals,   gold and silver. Gold I gave in my previous article, " Gold in the 3rd quarter of 2012 and outlook for the future . " Today I will address other commodity coins, silver.

Historically, the ratio of prices of gold and silver from the late 19th Century 1:17 (in the earth's crust is the quantitative ratio of about 1:15), which means that for a 17-ounce (troy ounces) of silver you could buy 1 oz of gold. Today the ratio is somewhere around 1:55, which means that silver is undervalued longer historical perspective, although aboveground supplies of silver are lower than gold. Detail the ratio of inventories will be argued later in Figure No. 4


Many people are unaware that the Czech silver "TOLAR" weighing 1 oz is most likely prapůvodce today's U.S. "dollar". Word similarity is more than evident. Like the dollar, it looks familiar with other currencies, where for example the pound, mark and guilder are also originally weighting units of silver or gold. Euro is a unit of weight, so nothing wrong with him and looks.

We currently have 3 main areas of use of silver, for:

First Industry

Second Investment (money)

Third Jewelry and Decoration


And until recently, the industry was the main driver of demand for silver. This, however, since the second half of the last decade begun to change.

auto;-webkit-text-stroke-width: 0px; "> This change apparently did not notice many economic and financial experts and analysts, mainly because those of banks and investment funds for several years say that the demand for silver based on the decline in industrial production declines in the world and it will fall and basically we have a surplus in the supply-demand balance of silver.

Graph 1

Source: Institute & Silver Kitco.com

As you can see in the chart No.1, silver surpluses beginning in 2005. But what's happening with the price of silver? Price continues to grow and the bigger surpluses are, the higher the price. How is it possible? Where comrades analysts from banks made a mistake?

normal; orphans: 2; Widows: 2; background-color: rgb (255, 255, 255);-webkit-text-size-adjust: auto;-webkit-text-stroke-width: 0px; "> The answer is very simple. forgotten entirely on investment (monetary) recovery of silver. Financial, we think monetary use as a store of value and medium of exchange not (even when silver coins were used almost the end of the 60-ies of the last century in Mexico and the USA).

The increase in money, or if the investment recovery can be seen in the following table:

Another graph shows us in detail how since 2002 constantly increasing investment use of silver, while in 2011, consists of investment silver already 58% of the amount of silver used by the industry. We see that the amount of silver for the industry is essentially constant since 2007 (exception is 2009), and they grow mainly invest in silver, total demand is growing us.

Chart 2

In the next year probably will notice a slight decrease in the industrial use of silver, but investment demand it certainly made up for, and we believe that even exceed a total silver demand in 2013 will exceed 1.1 billion high-oz.

2, Widows: 2; background-color: rgb (255, 255, 255);-webkit-text-size-adjust: auto;-webkit-text-stroke-width: 0px; "> Now we look at the supply side. Silver mining in 2011 was approximately 761.6 million ounces, which constitutes about 75% of total demand. In the next chart will show you how decreasing yield ore at 6 largest silver miner in the world.

Diagram 3

Source: Annual reports six mining companies

0px; "> With the decline in yields, constantly worsening access to sites rich in silver ore and also to increased prices of mining equipment, the cost of production increases every year. This is similar to that of crude oil or natural gas. Terms of profitability and profit / loss Silver mining is probably obvious that if the selling prices fall below the cost price, mining restricts or stops and limits to the menu, which by the way is already inadequate.

What is the average global cost price of silver to 1 oz is very difficult calculable, but for example, according to data from annual reports of four mining companies (Fresnillo, Hecla, Revett Minerals and U.S. Silver), the average cost price of 1 oz of silver in 2010, approximately 17 USD. In 2011 it was already 23 USD / oz. This year, the unit cost price of silver even higher, maybe around 28 USD / oz.


Currently, the spot price of silver selling around 33 USD / oz, what is the miner's even acceptable price. However, since we expect the rising inflation in the next year, the cost price of silver can easily přehupnout over 30 USD / oz. How do you market in this situation can and experts such as Goldman Sachs analysts think that the price of silver will be in 2013 with an unchanged supply and demand fall, so that I do not understand.

Clear, you've got a great supply of silver in aboveground vaults and warehouses banks and other institutions, and if it is not sufficient production to meet the demand, so we will use these supplies. Let's see where we stand at present with the above-ground stocks of silver and compare them with stocks and gold.

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Graph No. 4

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-Webkit-text-size-adjust: auto;-webkit-text-stroke-width: 0px; "> Source: Contrarian-investor.com

-Webkit-text-size-adjust: auto;-webkit-text-stroke-width: 0px; "> We see that with the above-ground stocks of silver we stand pretty miserable. For 60 years (from 1950 to 2010), the We supply dwindled to eight billion ounces and that even in 2011, but this year, it will have bridges the demand for silver in aboveground supplies.

So now we have in aboveground stocks of around 1.5 billion ounces ounces, the demand at around 1 billion ounces a year and stagnant production is not an indicator of silver prices decline in the future. May therefore, under these circumstances, the price of silver down?

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255);-webkit-text-size-adjust: auto;-webkit-text-stroke-width: 0px; "> As a result of lingering economic and financial crisis and the gradual loss of people's trust in the miraculous power of central bankers and politicians to influence and control the economics as they please, begin to have commodity money   (Gold and silver) is becoming increasingly important as a safe haven, as insurance against rising inflation and the overall property as security against the potential collapse of fiat currencies type USD, EUR or CZK.


The silver has until now regarded mainly as an industrial metal that is changing now and again, silver is gaining importance as a trade and monetary investment underlying asset.

-Webkit-text-size-adjust: auto;-webkit-text-stroke-width: 0px; "> Fully share new insights on the silver and recommend its purchase as fuses in case of high inflation or a financial crisis. Silver has big step towards the top position in the ranking of investment assets that will appreciate against Adulterants FIAT currencies in the medium to long term, and it is very likely that if the stops to rescue the U.S. economy and Europe by printing more fiat money, the price of silver may still attack within 5 years of the 100 USD / oz .

Ing. Rastislav Trecák

vystudoval Univerzitu Mateja Bela v Banské Bystrici. Po škole pracoval jako obchodní manažer v petrolejářské branži a mimo jiné zabezpečoval i finanční hedging ropných produktů. Od roku 2010 začal působit jako poradce a zprostředkovatel služeb spojených s finančním zabezpečením fyzických obchodů s komoditami a od roku 2012, kdy založil společnost G&S Solutions, se věnuje informačně-edukační činnosti v oblasti monetárně-makroekonomické. Z pohledu svobodné liberální ekonomie vysvětluje principy fungování současného globálního finančně-ekonomického systému a doporučuje řešení ochrany proti mnoha negativním vlivům systému na občany.

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Potenciál stříbra je podceňován (3)

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