Silver demand simply 'outrageous'

21 FEBRUARY, 2011 10:04 By evan pickworth [businesslive senior assistant editor]

Silver prices made a new 30 year high of $31.75 an ounce last week and then proceeded to ratchet even higher into the weekend to around $33 on what is described as market backwardation.

Rarely seen, silver backwardation tells us the silver market can't keep up with the level of international and retail investor demand. It indicates the fact that buyers are so concerned about future supplies, they're willing to pay a higher premium for immediate delivery," explains precious metals analyst from Lakeshore Trading, Dave Levenstein.

Backwardation happens when the market quotes a lower price for a distant delivery date and a higher price for a near-term delivery date.

And Levenstein believes it will continue as China demand rockets with an exploding middle class and Asian "savers" using silver to store value, while huge industrial demand increases both in China and around the globe.

"Retail investors, jittery about U.S. dollar fallout and other major currencies, back up the truck on silver coins and bars," he says.

"Chinese demand for silver is outrageous. The Industrial and Commercial Bank of China (ICBC) sold 13 tons of physical silver in January 2011 alone. Compare that to the 33 tons sold in all of 2010."

Taking all of that into consideration, there's no reason to believe silver will not be a great long-term investment as prices are surely headed higher, according to the analyst, in an interview with BusinessLIVE.