World Silver Survey: Investment, Industrial Demand Surge

The sharp jump in silver prices during 2010 was the result of big increases in both investment and industrial-fabrication demand, according to the World Silver Survey 2011 released by the Silver Institute Thursday.

Global silver investment rose by 40% last year to 279.3 million troy ounces, said the report, for which data was compiled by the consultancy GFMS. This resulted in a net flow into silver of $5.6 billion, almost double the amount from 2009.

Meanwhile, total fabrication demand rose 12.8% to a 10-year high of 878.8 million ounces in 2010, led by industrial uses, said the report.

Silver posted an average price of $20.19 per ounce in 2010, a level surpassed only in 1980 and well up from the $14.67 average of 2009, said the report. The strength has continued so far into 2011, with the London silver fixing price averaging $31.86 through the end of the first quarter.

In the Silver Survey, GFMS described itself as "positive" on the outlook for silver prices, but "cautiously so." The consultancy said the economic backdrop for investment remains supportive since monetary policy is unlikely to be tightened "that much" in 2011 and inflation and sovereign-debt concerns will grow. This will encourage investment demand for silver and gold alike, and ongoing gains in industrial demand should be "solid," GFMS said.

"We are, however, somewhat concerned by the extent to which the white metal has lately powered ahead of gold," GFMS said. "We are skeptical, for instance, that there is a 'new paradigm' at work that justifies a move even lower in the gold:silver ratio. Moreover, we are conscious of the fact that a fair proportion of the recent investment in silver is from more speculative money that could exit the market rapidly if conditions were to change."