Silver continues to hit new highs and headlines as investors look to it as, among other things a safe haven but, there are some that think caution is warranted in the short term.
Speaking to Mineweb.com's Metals Weekly podcast, silver guru and author of the Morgan Report, David Morgan said that, although he is still very bullish about silver in the long term "with everybody screaming that silver can only go up from this point onward", he is beginning to get cautious.
Firstly, he says, " sentiment is too high and secondly gold hasn't really confirmed this move yet - it's very close to breaking out, it has a triple top around the US$1,424 level... and it hasn't broken through there significantly yet."
Morgan says that if gold does break out significantly, then silver is likely to continue its run but, he says current indications are that gold is looking to correct.
"With all of this geopolitical tension it [gold] should be soaring to new highs and it's not doing so. I've seen it time and again that people say gold is the best thing you can buy right now and I see it not reacting as favourably as it should be to what's going on, on the ground on the political front. When that takes place the smart money usually is backing off the gold trade."
Morgan goes on to add that he believes there is a bit of an inflection point occurring in the market at the moment and that a correction may be on the way.
" My best guess is that we will see a consolidation fairly soon and we will probably see gold outperforming silver for a while still."
In other words, he says, the gold:silver ratio could come back to around 50:1 or even a 60:1 perhaps, depending on the kind of sentiment that takes over in the market.
"I haven't ruled out a deflationary sentiment - I don't think we're going to see true deflation, but with food prices doing what they're doing globally - let's face it, even a metal head like myself is more realistic than that, meaning that the top tier is food, water and energy. And, with food prices growing - that could take some of the wind out of metals at some point in the future."
Longer term
Over the longer term however, Morgan is far more bullish on silver and maintains that the metal will hit $40 per ounce this year.
And, once again, one of the major reasons for the growth is China. But, unlike in gold where we have seen a significant uptick in Chinese investment demand, it is in the industrial space that Morgan believes the Chinese have the biggest role to play when it comes to the silver market.
"The amount of silver buying in China by the population is not really that significant and most of it is on paper,"he says.
"More important," he adds, "is what the industrialisation of China will mean to the silver market in China. I heard about that almost a decade ago - if you go back about 10 years ago and the amount of silver used on a per capita basis in China was one-seventieth of anybody in North America. So it's common sense to see as China becomes more and more technologically capable and starts to narrow the difference between their technology level and what it is in North America, that just by that alone we should see a massive increase in silver usage from the industrial side that very few people think about."
Silver is used in the majority of high-tech devices, albeit in very small amounts but, as Morgan points out, as China develops you have to begin multiplying all of those small amounts by 1.4bn.
" I'm not denying that there's physical investment demand in China," he says, "I'm merely pointing out that if every Chinese citizen had the lifestyle of the average North American citizen, that there would be a 70-fold increase on a per capita basis for silver than there was a decade ago."
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