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Why has the demand for Silver increased in Europe?

Since the start of the crisis in 2007 which found its beginnings in the American sub-prime crisis, the worries of savers were never important.

On each side of the Atlantic, the households who thought with certainty that their national economy would always be robust and worth something must have rapidly been disenchanted.

Bank failures, payment default by sovereign states, all the risks which we thought were reserved only for under-developed countries appeared before our very eyes in the so-called rich countries.

To overcome the crisis, the monetary authorities told the central banks that to “stimulate” the economy, they must print money without the consideration of new wealth.

Faced with all these risks, investors have turned massively towards precious metals as the ultimate guarantee of their savings and equally allowing them to place their money outside of the banking system.

It is this general worry which fundamentally explains the rise in Gold these last years and now, of course, Silver.

Once upon a time, it was money

The principal point in common with Gold: Silver was once money! If it has been a long time since Gold could be used to buy bread; with Silver, it was permitted until 1980 when Silver coins were demonetised.

Silver has therefore remained legal tender longer than Gold, indeed it still persists in many countries, unlike Gold which is now usually reserved for the central banks and risk-averse individuals worried by the global economic system.

Historically (and this has been the case in Europe), the rule was “Bimetalism”. Gold and Silver formed the currency and if the rarity of one gave it great value (Gold), the abundance of the other (Silver) allowed free and easy circulation which permitted small commercial transactions.

This small piece of history allows us to understand why Silver is not unknown to the population of Europe.

A metal in demand

In addition to its past role as money, like Gold, Silver has an important place in industry. One of the primary reasons is that it is an excellent conductor. Unlike Gold, it is exists in huge quantities on the surface of the Earth. The quantity of Gold produced to date is estimated in the region of 155,000 tonnes – it would form a large cube where each side was 20m. It is estimated 100,000 tonnes remains in the ground of which about half will be able to be exploited. Each year, it is estimated 650 million ounces of Silver are extracted – that is 19 565 tonnes.

The massive demand from the industrial sector should not pose a problem. For sure, if Silver is used in large quantities, it can be recycled although this accounts for about one third of the amount used annually. As Jason Hommel said in his note on 24h Gold, “In all of history, about 45 billion ounces of Silver have been mined. Of this, nearly everything, between 90% and 95% was consumed and eventually buried with other waste. Why? Recycling is not profitable! It is cheaper to extract than recycle. There is not much interest about this incredible amount of Silver extracted since the dawn of time – just enough to make the money markets interested”. Translation – money is a metal which “consumes”.

And you guessed it – little by little, Silver is becoming scarce, slowly but surely…

The end of Silver by 2021 ?

This is now certainly one of the main factors behind the rise, and also speculation on Silver, by the investment banks and funds.

In fact, according to several credible geological studies, Silver reserves may become exhausted by 2021 in view of the proven reserves and the current industrial consumption.

This is not a firm date, more a pivotal date which the tensions in the Silver market will be tangible and measureable. It is not that there will be no more Silver at all overnight. More prosaically, it is said there will no longer be more for everyone at affordable prices.

The awareness of this scarcity of resources is an added factor in the search and diversification of products to protect against bank or state failure. The savvy saver will be aware of this – the funds invested in traditional financial instruments are those turning to Gold and Silver as a tangible asset but also because of the “end” of abundant Silver approaching. In fact, 2021 is tomorrow… almost.

The poisonous European atmosphere!

Finally, the climate in Europe is poisonous. More and more countries are sinking into recession. The ECB, under German pressure, still refuses to print money as is the case in the USA or Japan which leads more and more European countries into bankruptcy or at least a partial default. Unemployment is rising. Consumption is falling. In short, all indicators are red. The negative climate can only encourage investors to turn to tangible assets and diversify their investments. There is Gold of course, and Silver.

So the three-headed threat of bankruptcy, scarcity of Silver and poisonous European climate will push up demand and should we not see any change in European policy, it will continue. In North America, the demand is already high due to the fear of hyperinflation related to the Quantitative Easing (money printing) undertaken by the Governor of the Fed, Ben Bernanke. The risk of bank failure is an unfortunate reality for many United States citizens.

CHARLES SANNAT, translation David HODGE

Charles SANNAT is a graduate of the School of Foreign Trade and the Centre for Diplomatic and Strategic Studies. He began his career in 1997 in the technology sector as a consultant and manager with the IT division within the Altran Group. (Banking and Insurance). He joined BNP Paribas in 2006 as “Chargé d’Affaires”. He is currently the Director of Economic Studies for AuCOFFRE.com

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"For a mountaineer, the important things are the effort, the posture and the muscles. The rope that holds him serves no purpose when everything works but it gives him a sense of security. In the same way, all gold does is ensure confidence; it's a safe haven."