Silver Headed to $50 an Ounce in 2011

Brian Hicks

Updated February 25, 2011

Gold will continue dominate the precious metal headlines in 2011. But it’s silver that will ultimately be the year’s top performing precious metal.

Don’t get me wrong; gold will do very well for investors this year.

But on a dollar-for-dollar basis, silver is going to blow the doors off gold’s performance in 2011.

Silver could easily eclipse the metal’s 1980 nominal high of $50 an ounce this year.

And when you learn just how little silver is available on the market right now, I think you’ll agree…

The ten largest precious metal traders on COMEX currently hold net short silver positions that represent more than 330 million ounces — nearly half of total global silver production.

Compare that to gold, in which the net short position in of the same ten traders represents 25 million ounces (or a mere 1%) of the 2 billion ounces of world gold inventory.

That means the net short position in silver is 27 times greater than that of gold.

This is setting up what I believe could be an explosive situation for wise investors.

Silver Prices
feb 2011 silver 1

The world’s largest holders of silver bullion account for roughly half (500 million ounces) of the available 1 billion ounces of worldwide silver.

This is spread over the seven largest investment funds, which include iShares Silver Trust (NYSE: SLV), the Central Fund of Canada (AMEX: CEF), and others.

This means only 500 million ounces remain for the rest of the world to invest in.

And remember that, at some point, 330 million ounces of this will eventually need to be purchased by the net physical short positions of the ten largest short players who will have to eventually cover.

That means there would only be 170 million ounces of silver available to investors worldwide who are suddenly buying silver in ever-increasing amounts.

And unlike gold, there is little in the way of available above ground silver inventory.

The COMEX reports roughly 120 million ounces of silver in inventory. But most of this is already accounted for by those who hold a warehouse receipt.

All this becomes a real problem when you consider that ownership of physical silver is practically becoming a religion in China.

In the past 16 months, China has gone from a net exporter of ~100 million ounces of silver to a net importer of ~150 million ounces of silver. This essentially means that ~250 million of silver is no longer available to the market on an annual basis.

The Chinese government is teaching their citizens the ownership of silver is an antidote to a devaluing U.S. dollar.

And they’re right.

This has massive implications for the silver market when you consider the 1.3 billion people who live there are rapidly becoming more interested in buying physical bullion… and will continue to do for quite some time in increasing amounts.

The price of silver is now within striking distance of re-testing record highs as the metal continues to react to rising global demand and rapidly diminishing supplies.

As I mentioned, I expect to see the price of silver top $50 this year. In respect to this, I continue to urge speculators to buy physical silver while it’s still easily available to the retail market.

Investments in physical silver — as well as quality silver stocks — will perform very well in the coming months and year.

Good Investing,

Greg McCoach
Analyst, Wealth Daily
Investment Director, Mining Speculator and Insider Alert

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