Why Silver May Outshine Gold (cont.)

Video transcript:

Today is Friday 9th December 2016 and we are commenting additionally to our video produced on 4th December entitled “Why Silver may outshine Gold in 2017”.

Now before we do that, we wish to point out at this stage, we are not saying that silver is on an upward price trajectory right now. Certainly not at least until we have seen what the FED does next week and the forward guidance, it issues – if any. What we are saying though, is that despite our view back in 2015 that perhaps gold was the better purchase decision short term then, the situation may in fact change over the coming 12 – 24 months.

We have already stated that China has begun curbing gold imports and that India too has done this in the past and may very well do so again. It is India we now wish to focus on a little more and hopefully you will see why.

According to the GFMS Gold Survey 2016; India is the world’s largest consumer of gold jewellery at nearly 700 tonnes the previous year. However, it mines less than 2 tonnes of gold a year. This means India must import gold worth in excess of US$25 billion each year, pushing up its current account deficit and reducing the value of the rupee.

In 2011, Australian Investment Bank Macquarie estimated that 78% of India’s household savings were held in gold and this presents a problem for the economy, in that, by building up savings in gold rather than deposits in a bank, creates a permanent drag on India’s growth as these ‘savings’ do not increase the available funds for lending within the banking system. One reason it is so difficult to put this gold to work as investment capital is that 79% of it is bought as jewellery, rather than bars or coins.

Last Year, Prime Minister Narendra Modi’s government introduced a Sovereign Gold Bond scheme which allowed gold holders to swap their gold for an interest-bearing bond. At the end of the bond’s life investors would effectively be returned the same amount of gold. This has proven to be a spectacular failure for as of November 2016; only 14 tonnes of gold has been subscribed compared with an estimated privately held gold stock of some 20,000 tonnes.

Following the recent import tax hikes for gold, 2015 saw Indian silver imports grow to almost 8,000 tonnes, 14% up on the previous 2014 record. At the same time, demand for gold jewellery, as reported by the World Gold Council, was down 30% for the 12 months to the end of September 2016. This suggests that there is a substitution effect, between gold and silver.

Although Gold makes up the vast majority of Indian jewellery sales the graph shows a 600% growth in silver jewellery demand in India, during the past ten years, relative to marginal growth of only 25% in gold jewellery demand.

We should not forget either that there are other substitutes such as Platinum for example but the evidence suggests that it is silver which has proven to be in greater demand when gold is not available or too expensive.

It’s worth bearing in mind that as already mentioned; the Indian gold jewellery market in 2015 was worth US$25 billion, while the total world silver jewellery market was worth only US$3.5 billion. So needless to say that any significant swap from India’s buying habits from gold to silver could actually have a profound effect on silver’s price – until at least their imports are restricted or taxed further.

So those of you who have purchased silver in the past and are holding on to a loss, we are saying don’t despair, silver will have its day. It may not be today or tomorrow but industrial trends such as solar panels, medicines and technology, together with curbs and restrictions placed by Governments on Gold will eventually alter this imbalance between the favoured gold and poorer cousin silver.

It may take some time, however we are confident that taking a long term view, both metals will have proven to have been worth accumulating and silver could indeed prove most advantageous to all but especially younger people who have the opportunity to save it for their retirement.

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Disclaimer:

Illuminati Silver owners come from a background of Banking, International Wealth Management and Economics. Having now retired from these worlds we are not qualified to give investment advice. Therefore, this and other productions must not be deemed to be giving such advice and merely represent the personal views of its owners.