Understanding The Dynamics Of The Paradigm Shift In Silver (ABSENT INFLATION)
The majority of people including myself didn;t understand the vast implications of buying silver or silver miners as an investment. Most people think it's the poor man's gold and used as a hedge against inflation. So let's start with the supply side.
Supply Side - Although Silver Mined hit a record in 2007, it has been marginally increasing year over year. Even over the last 7 years there as only been an increase of 20-30 Billion ounces. This was obviously a result of the high demand for base metals in emerging countries, silver production increased as it is mined for the most part with base metals. Even an increase of that magnitude was insufficient as the market has seen silver rise in price during that period. But the supply side is more or less unimportant as it will likely have influence on the price. Instead one must look into the demand side, or more specifically the future demand.
Old Demand Side - The old demand paradigm currently in transition had 53% of silver mined used in industrial production, 20% for jewelry, Photography 13%, Coins 7.8% & 7% for silverware. This was the breakdown for 2008.
New/ Future Demand - Assuming Photography and Silverware stay at 8 & 7%, 20% for Jewelry, it comes down to the industrial side. But technically the following can be split up into Industrial and consumer goods. As the U.S are becoming environmentally friendly, they found silver it their choice for metal. For all of you who havn't heard of lithium-ion batteries, they are the ones used in semiconductors, laptops, cellphones, etc. Here is a breif article discussing the future of batteries
"Everyone who uses laptops or cell-phones these days is at least partially aware of the battery technology everybody uses in those devices. Lithium-ion and lithium-polymer batteries have literally changed the world of portable devices, making them lighter, while also extending useful battery life. They have become the most common type of battery used in consumer rechargeable devices. The alternative comes in the form of silver-oxide or silver-zinc technology. Silver-zinc batteries can run up to 40% longer than the equivalent lithium-ion battery. Over 95% of the primary elements in the battery can be recycled. There are no heavy metals or toxic chemicals in modern silver-zinc batteries. Plus, their water-based chemistry make them free from the risk of thermal runaway, fire, and explosion.
There is little doubt that these batteries are a safer, greener, longer-running choice for laptops and cell-phones. With a little more development, their future looks very bright. The technology has the backing of some heavy hitters, as well. For example, Intel Capital has invested in a silver-zinc battery manufacturer named Zinc Matrix Power (ZMP).
Laptop manufacturers are in the process of examining silver-zinc batteries for use. ZMP claims at least one laptop maker already has designs in the queue with an eye toward introduction in their high-end laptops in mid 2009. Eventually, we may even see after-market, drop-in replacement batteries engineered to retrofit older laptops with this safer technology. Expect advertising to tout extended run times and the "green" aspects as major selling points."
Staying on the subject of going green, silver will also play a significant role in solar panels along with other forms of green energy production. If that isn't enough remember the current industrial production for which silver is used is likely to catch up for the following reasons: More and more countries be industrialized along with the BRIC countries. But when this happens they will also demand more consumer goods such as laptops and cellphones. Remember they have starting producing electric cars (TATA MOTORS), which just adds to the bullish case.
Conclusion; With a supply that is falling further and further behind demand, the price of silver will be forced up. Also as the transition begins from lithium ion batteries to Silver-Zinc, will increase demand at a moderate pace for a long period of time.