We are saddened by the overpaid analyst crowd, desperate to please their handlers, who consistently misrepresent facts related to the poor man's gold. When we hear statements like, "Silver is suffering from decreased solar demand" we struggle to understand why people still follow the financial press? Solar represents approximately 5% of annual silver demand or 40mil oz. Here is a helpful chart of annual silver supply and demand according to The Silver Institute.
We would like to point out that annual gold production is roughly 2% of total supply. This was approximately 2,700 tons or 86mil ounces in 2010. Consider that the price of gold related to silver is 52:1 but the ratio of silver to gold mined annually is only 8:1. Nearly all of the silver mined is consumed and there are relatively few burgeoning silver deposits to be acquired causing questions as to how any increase in demand would be met?
When we objectively observe silver from a charting perspective the picture is quite bullish. Please consider that margin requirements on the COMEX were raised roughly 10 times last year and have not been lowered. Initial margin on a 5,000oz silver contract is $24,975 or $5 per ounce of silver controlled. If you trade long term US Treasury notes you are encouraged to speculate on a $100,000 contract with only $3,780 in initial margin. So you can lever your cash 26:1 in the bloated treasury market or 5:1 in the silver market. Do you see how they have done everything possible to discourage a rise in silver?
*While we would not buy SLV even if it were our only available option in the silver space, it does make for a handy charting tool.
Even in the face of this very discouraging set of circumstances, we can see that silver has consolidated horizontally. This has created a base that is quite interesting. Long term support was confirmed over the past 8 sessions making the $32.46 level important. Now we suspect a challenge of the 200dma at $34.47 in in order. This really means a close above is what we want.
While it is difficult to say when this will occur we are optimistic on the prospects of a move higher from this level. In fact, a strong move over the 200dma would put $40/oz in reach in the spot market.