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silver hits us18 dollars an ounce

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    Positive on silver - despite chronic oversupply
    Positive words on silver from Jessica Cross of the specialist commodity consultants, VM Group.

    Author: Lawrence Williams
    Posted: Friday , 22 Feb 2008

    LONDON -

    Speaking at yesterday's excellent inaugural Global Capital Forum on gold and silver in London, Jessica Cross of the VM group was very positive about the price prospects for the metal, despite there being an apparent supply surplus and a steady fall in usage in its principal industrial use in the photography sector.

    Cross described silver as "exciting and often ignored, competing in the shadow of gold and platinum". Indeed since the low point in precious metals markets in 2001, silver has outperformed gold by rising 254% as against gold's 235%. As for platinum, which has actually recorded an even greater rise on a genuine supply shortage, that's another issue altogether! Cross said silver had sometimes been somnolent - "but boy it can move!"

    Unlike for other metals where one can calculate a likely relationship between price and the marginal cost of production, silver is produced largely as a byproduct (about 65% of world mine production). Even primary silver producers usually generate substantial byproduct output of other precious or base metals. But what this means is that silver tends to be produced without regard at all to the metal price which can be disadvantageous in terms of market control by the miners.

    Most end-uses historically have generated large volumes of recycled materials, which all come back on to the market and thus maintain supplies at a high level, while the largest use in photography was in decline as the digital camera takes over.

    But there are positive points in industrial usage, and these are almost in the exponential growth phase, perhaps currently amounting to a relatively small proportion of offtake, but likely to become very significant in the years ahead. Meanwhile, as gold and platinum become more and more expensive, silver tends to come into its own as the first, and affordable, port of call in respect of precious metals investment.

    But it is in areas like the production of biocides and RFID (radio frequency identification) devices where the real growth in industrial usage may be seen. Silver is beginning to be used in wood preservatives now that some other harmful chemicals are being legislated out of use in this sector. This could lead to strong demand. In the medical sector, wound dressings utilising the metals biocidal properties is another area likely to show major growth, as are other medical uses in the fight against hospital borne bacteria.

    But even bigger could be the RFID factor with admittedly minute amounts going into built in chips in passports, ID cards etc. China, for example is producing huge numbers of ID cards for its population utilising silver, and the RFID usage in total could soak up as much as 90 million ounces by 2013. What is perhaps more encouraging for silver is that these uses are unlikel to become significant sources of recycled material.

    Overall though, with silver in chronic surplus as far as normal industrial supply and demand statistics will show it still remains an efficient way to invest in precious metals, with the balance of supply over demand largely held as investment metal. In this respect, investor demand tends to drive the price and Cross has little doubt that the price will go with gold - and she's positive about the gold price too!

    Source: Kitco

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