While silver and gold prices shake off the summer doldrums and appear set to resume their multiyear advance, let's take this opportunity to delve into key elements of silver supply and demand.
Silver stocks are rapidly waking up from a long and excruciating slumber. Atop a 9% advance for bullion proxy iShares Silver Trust
SLV data by YCharts
Fortunately, the kind folks at Endeavour Silver
As you have just seen, resilient industrial demand remains a core component of silver price dynamics even as the once-dominant application in film-based photography permanently recedes. As Hecla Mining
By far the biggest increase in global silver demand over recent years, meanwhile, has come from silver's time-honored position alongside gold as a vehicle for wealth preservation, particularly through periods of acute financial or monetary distress. Despite a fivefold increase in total investment demand from 2007 to 2010 alone, it may surprise some Fools to learn that total 2010 investment demand of 296.2 million ounces corresponds to a dollar value (at the average 2010 silver price) of just $6 billion. A rogue JPMorgan Chase trader can lose that kind of money in a single quarter!
The modest scale of the silver market overall, in contrast to the unimaginably massive universe of heavily leveraged derivatives that continues to threaten the financial system at large, may offer some context for the gut-wrenching volatility that scares some investors away from silver entirely. For my part, I'm more interested in seeing what the small scale of the silver market will mean for prices in the very likely scenario in which global silver investment demand continues to gather steam. For more on the investment component of the equation, please stay tuned for my next discussion of silver supply and demand by bookmarking my article list or following me on Twitter.