Looking at US Mint sales in 2011 and 2012, Sprott said that silver and gold coins have received the same amount of investment dollars. That means investors are purchasing 53 percent more silver than gold.
Sprott added that his own firm raised $320 million in the final tranche when it issued its silver trust compared to $349 million raised for gold a few months earlier. “We bought 50 times more silver for investment purposes,” he said.
Sprott maintains that the current level of demand for silver cannot continue without it having an impact on the market. When silver is available seven to one, investors cannot keep buying it 50 to one without causing something to happen, Sprott said.
The allure of silver prices
A lot of silver’s attraction stems from the fact that it trades based on many of the same fundamentals as gold, but is much more affordable than its yellow peer. Investors around the globe are taking note of this fact.
Major metal markets, which are known for their large gold appetites, are increasingly turning their sights to the white metal. Last October, The Wall Street Journal reported a notable shift in focus from gold to silver among Indian investors, identifying silver’s apparent undervaluation as a primary reason for the switch.
Demand has also surged in China. China’s appetite for the white metal has made it the world’s largest silver market, according to the Silver Institute. As demand has grown, so too have the product offerings that give investors accessibility to the market.
Added to the metal’s positive demand outlook are expectations for healthy industrial consumption. In a recent interview with the South China Morning Post, Haywood Cheung Tak-hay, president of the Chinese Gold & Silver Exchange Society, pointed to strong economic growth in Asia, citing expectations that large amounts of silver will be used for mobile phones and other electronics by the likes of China, Japan and South Korea.
“Silver is now trading at a much lower level than its normal difference from gold. As such, we can predict silver will rise further this year,” Cheung said.
Support for silver
While demand for physical silver is set to remain strong, there is a ticking time bomb in the paper markets, according to Chris Powell and Bill Murphy, founders of the Gold Anti-Trust Action Committee.
In a recent Future Money Trends interview, they explain that the massive shorting of silver that JPMorgan Chase (NYSE:JPM) has caused in the derivatives market has created an incredible shortage situation.The silver price is going to go bonkers, said Murphy.
Though heavy liquidation has recently been seen in the silver futures market, there are some professional money managers who are not only betting on silver, but are also betting that it will outperform gold.
Given supportive macroeconomic fundamentals, Ian Williams, mixed asset fund manager at Charteris Treasury, has forecast a sustained bull market for silver that should drive its price to $165 an ounce by October 2015.
In a recent webcast, Jeffrey Gundlach, founder of DoubleLine Capital, reportedly revealed a contrarian position. He is bullish on gold even as many deep-pocketed investors are bailing on the metal. Gundlach expects gold prices to rise in tune with central bank balance sheets, but he prefers silver because it is offers a high beta. Gains for gold will therefore mean larger gains for bets placed on silver.
History is on the side of those predicting that silver will outperform gold. Silver has outdone its more popular yellow peer over the past 10 years, according to asset management firm Schroders. The total return for the white metal was 503 percent compared to gold’s 461-percent return, the South China Morning Post quoted the firm as saying.
Securities Disclosure: I, Michelle Smith, do not hold equity interests in any of the companies mentioned in this article.