CHAPTER 33

Fundamental Analysis of the World Silver Market

Jeffrey M. Christian

Managing Director

CPM Group

Silver is a rather unique commodity in that it straddles both the financial markets and the commodities markets. It trades like a financial asset, but also is an industrial commodity the bulk of which is used in a wide range of fabricated products.

In some ways, silver shares further characteristics with gold. Nevertheless, there are important differences between silver and gold. Silver has much more of an industrial base to its fabrication demand than gold does. Almost all of the gold absorbed each year in the world either goes into investor inventories of gold bullion, or it is used in jewelry. Gold jewelry has a quasi-investment nature to it, being used as a form of investment and a form of savings in many cultures and countries. Less than 10% of annual gold use goes into nonjewelry fabricated products. In contrast to this, most silver is used in fabricated products that have nothing to do with silver's other roles as an investment product and a form of savings. Silver is purchased as an investment and as a form of savings, but in the silver market these purchases represent a much smaller portion of annual total demand. Typically less than one-third of total silver demand goes into investment and jewelry products. Thus silver's price is determined by a more diverse mix of factors than is the price of gold, which is largely driven by investment demand patterns. (See Exhibit ...

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