Gold is oscillating around critical support on its chart at $1200. Silver has already dipped below its long term support of $17. The last time both metals have been trading at these price levels, were during their double bottom last year and, before that, during the summer of 2010.

The price of silver looks weaker on the chart, as we discussed past week on this blog. However, there is a significant disconnect with the physical silver market. Consider the following facts related to the silver market, nicely presented by Casey Research earlier this week.
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  • Global jewelry demand, especially in Asian countries;
  • The number of new industrial applications using silver;
  • The number of new biomedical uses using silver;
  • Global electronics demand for silver;
  • Photovoltaic (solar) demand;
  • Volume on the Shanghai Futures Exchange which already surpassed the Comex last year;
  • US Mint sales: silver Eagle sales in September 2014 were double July and August; it sold 766,000 Eagles on the last day of the month alone;
  • Perth Mint sales: they were 41.6% higher in August than July, and September 2014 sales were the third highest of the year;
  • Domestic demand in China, which is expected for the first time in history to exceed 250 million ounces this year;
  • The difference between the silver price and the cost of production.

Admittedly, this list is impressive on its own.

But here is the most “disturbing” fact. The silver price has been trending lower amid increasing physical holdings of silver ETF’s. In other words, investment demand for silver through silver ETF’s, which are the most popular silver investment vehicles for Western investors, have been going up. The first chart below makes the point.

Silver Stronger Than Gold Although Not Reflected In Price Chart 1

When you think about it, there is nothing strange or disturbing associated with this trend; everyone loves to buy things which go down in price, for sure if they have an intrinsic value. However, it becomes interesting when one looks at the same data in gold. As evidenced in the second chart, the price of gold has been going down but demand for gold investments, represented by gold ETF’s, has followed that trend.

Silver Stronger Than Gold Although Not Reflected In Price Chart 2

What does it tell you, dear reader?

It means, in our humble opinion, that silver looks not very constructive on its chart but demand for physical silver and silver investment demand remains strong, amid the silver price drop. We leave it up to readers to conclude what that means for silver’s longer term investment prospects.

Chart courtesy: Sharelynx.