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Silver makes an excellent biocide, as this investing analysis notes…

COMPARED TO GOLD and the other precious metals, Silver Investing frequently gets short shrift, writes Lara Crigger at Hard Assets Investor.

Silver is often seen as the "poor man’s gold" – a cheap entry point into precious metals investing for those who can’t afford to buy its posher yellow cousin.

But silver’s hybrid personality – half precious metal, half industrial workhorse – means it can be used in a much wider array of applications. And it’s silver’s increasing use as a biocide and antimicrobial agent that may be the most promising demand sector of all, more promising yet than new investing demand, says Jessica Cross, CEO of the VM Group consultancy in London.

Working in conjunction with Fortis Bank Nederland, VM Group provides investing research and analysis of the metals and broader commodities markets, including precious and base metals, energy, agribusiness and renewables. Here, in this interview with Hard Assets Investor, Jessica Cross discusses the outlook for silver, including whether faith in the Gold/Silver Ratio is well-founded, why silver recycling is set to decline, and how silver’s being used to purify water and gym clothes alike.

HAI: In a recent speech to the London Bullion Market Association, you said silver had been "typecast" by investors. What did you mean by that?

Cross: I think it’s been typecast by two completely separate markets. In India, you have a large population of rural-based people, who aren’t very high on the income ladder. They’ll tend to invest in silver, as far as they can invest in anything, and when they get more wealthy and affluent, they then tend to "trade up" into gold. So Silver Investing is the first point of entry, but gold is what they really aspire to, when their income allows them.

You see this in the US as well. There, I think you have a sector of investors who say, "Well, we can’t really afford gold, but we will take silver." So silver is seen as the poor man’s gold – which I think is completely wrong, as silver has a huge role to play as part of an investment portfolio.

But apart from that, people also watch the Gold/Silver Ratio. And when the ratio deteriorates out of silver’s favor, it’s used as sort of a secondary investment opportunity. A lot of people put a lot of faith in the gold/silver ratio.

HAI: Is that faith well-placed?

Cross: Over time, I think there’s certainly been a place for that perception. I much prefer to look at them as completely different, even though they’re both precious metals. Gold has very limited industrial end use, while silver offers an array of end uses, which are becoming increasingly more interesting. At the end of the day, that silver supply/demand balance is going to get increasingly healthier. So although the prices will sometimes move in tandem, they’re really very different.

HAI: What are some of the more interesting new end uses for silver, now that silver-based photography is on its way out?

Cross: There are a number of them, but I think the one that’s most going to benefit is using silver as a biocide. So then you’re looking at a lot of medical issues, water purification; using silver in food containers to keep things hygienic, and in fabrics, not just for the sporting field but also the leisurewear field. Silver could be used in bandages for hospitals. So there’s a huge range of diverse applications for use, just on the biocidal side. I think these are going to be coming into their own soon.

The beauty is, of course, that you eventually throw these items away. And even though the silver in that product that’s going into the dustbin is only there in minute quantities, you’re still not recycling it.

HAI: That’s very different than in the past, where photography led to a lot of recycling of silver.

Cross: It’s interesting – silver for photography has dropped quite sharply, of course, because everyone’s going to digital. Digital, of course, tends not to use silver in its process. But where you do still see silver used in photographic is for medical and industrial X-rays. That really is a firm growth area.

Still, that means the whole nature of silver going into the photographic industry is changing. You’re not seeing 35 mm film being the predominant product in that sector. You now have more silver going toward medical and industrial X-rays instead, and that means less generation of recycling. If you’re not using 35 mm film, you’re not sending it out for processing; that silver’s not coming out in the wash as they develop it, and so there’s no silver being generated for recycling.

So it’s a double-edged sword: There’s less silver going into photography in the first place, but there’s also less recycling going on as a consequence. There’s obviously a time lag in there, though…

HAI: Many people think finding potable water will be the next big issue we as a world will need to confront. How will silver’s antimicrobial properties play a role in this?

Cross: Silver, as a biocide, can help purify water containers, or act as a purifier. So you can buy a portable water purifier and lo and behold, there’s silver in it. Yes, I do think clean water’s going to be an issue. Our water system is a closed one, throughout the globe, and we’re seeing our quality of water decline, as we pollute it and reuse it. I’m horrified to hear that if you drink water in central London, it’s actually been through seven people before it goes through your kidneys.

HAI: That’s kind of gross.

Cross: This is the problem. Our water is declining in quality, and silver can play a role in improving that quality throughout the world. I think it’s an extremely important usage that will come into its own quite quickly.

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Source:Investing in Biocide Silver

South Africa’s huge gold and precious metals industry needs more power, fast…!

SOUTH AFRICA is no longer the world’s No.1 Gold Mining nation, but it remains one of the world’s primary precious metals producers, report Lisa Barr and Lara Crigger at Hard Assets Investor.

It also continues to struggle to meet its own growing electricity needs – and there’s little relief in sight, says Eskom, the state-owned power utility. It accounts for 95% of South Africa’s electricity supply, which is crucial to Gold Mining and precious metals production. Unless more power plants are built soon, however, the nation could face severe power supply shortages in 2011-13 and beyond.

This would cripple South Africa’s precious-metals mining industry, which, according to Johnson Matthey, accounts for some 78% of the world’s platinum, 35% of its palladium and 87% of its rhodium supply. And Eskom’s announcement could impact the precious metals market well before 2011, says Jessica Cross, CEO of VM Group.

Working in conjunction with Fortis Bank Nederland, VM Group – which produces the annual Yellow Book of Gold Price and mining research – provides research and analysis of the metals and broader commodities markets, including precious and base metals, energy, agribusiness and renewables.

Here, Jessica Cross tells Hard Assets Investor about South Africa’s power troubles, including what ripple effects the news could have on automakers, how platinum-group ETFs have affected the market, and what difference a flooded mine shaft makes.

HAI: What consequences would ongoing power disruptions in South Africa have on the precious metals markets?

Jessica Cross: It could be very serious, particularly for the PGMs [platinum group metals], not so much for gold. Well, South Africa is not the biggest gold producer anymore, but it is still up there, so any loss of production will certainly impact that market, too. But the real question is, what happens to PGMs? The world needs PGMs for autocatalysts, and primarily, South Africa is the main producer.

So obviously, any break in power supply to the mines is of very serious consequence, particularly for your deep hard-rock mining. If you have a prolonged power cut, chances are that those mines could flood, and the cost of trying to de-flood them is enormous. So it’s not just a question of the power going out and coming back on tomorrow, and it all gets sorted out; this has long-term consequences for PGM and gold capacity. It’s very serious.

HAI: When a mine floods, how long does it take to de-flood it?

Jessica Cross: Well, very often, they don’t even do it, because it just proves to be so expensive. It depends on the age of the mine, the depth of the shaft and how much life is left is in that shaft. In the end, you really, really don’t want to flood a shaft. It could take months to get that right, and everything – basically, your equipment, the shaft – all gets decommissioned.

So any announcement from Eskom along these lines makes one sit up and think what’s going to happen to PGM prices.

HAI: Something like that would certainly lend long-term support to PGM prices.

Jessica Cross: Absolutely. And I’m sure PGM producers are in intense discussion not only with their management, but also the government. Obviously, mining is crucial to the South African economy; it’s all intertwined and interrelated. It has implications in South Africa for employment. But a regular and reliable source of power is core to that industry and the economy, and really they can’t afford to have a problem like this re-emerging.

HAI: It’s interesting, because the platinum and palladium markets are so much smaller than other precious metals markets. So an announcement like this has the potential to dramatically drive prices.

Jessica Cross: It certainly does. I think once investors pick up on this it will create a knee-jerk reaction, because of South Africa’s dominance as a producer of PGMs, but also as you said, the markets are that much smaller, and people know that the PGMs are very instrumental in the control of exhaust emissions.

HAI: Speaking of which, how do you see power disruptions affecting the auto industry, especially with the current recovery in automobile demand?

Jessica Cross: Well, it’s interesting that they’re happening at the same time. You could have a double whammy. You’ve got very strong car registrations in China, and a recovery in Europe, a recovery in the U.S. It’s all primarily gasoline-driven cars, too, so you’re not seeing many electric cars coming in that don’t use platinum or PGMs at all. The market penetration isn’t there, and we don’t see that happening for the foreseeable future.

So we’re still very much relying both on diesel and gasoline catalysts, both of which require PGMs in different ratios. The procurers of these metals for the car manufacturers are left in a difficult situation, because they’re obliged to procure metals for long-term plans and production lines, but they have to do that not only amid rising prices, but also volatile prices. That’s very difficult.

HAI: There’s another factor, too, here, and that’s the platinum and palladium ETFs. Europe has had physically backed PGM ETFs for awhile, but in the United States, PPLT and PALL just launched, and they’re very popular. How do you see ETF investment affecting demand in this sector moving forward?

Jessica Cross: All the precious metals ETFs are doing particularly well. They’re the right products at the right time in the right place. They’re allowing investors to participate in this commodities cycle in a way that they couldn’t do before.

Clearly, if you have a sharply rising PGM price because of the Eskom factor in South Africa, you’re going to see more interest in these ETFs. People who got in early are obviously going to do very well with their investments. So I think the Eskom factor could raise the volatility of the ETFs, raise the turnover and it will lead to more investors coming in as a consequence.

HAI: Do you see the ETFs having a disproportionately large effect on the platinum and palladium markets, compared to something like GLD and gold?

Jessica Cross: I think you’re getting a slightly different sort of investment coming in, but it’s a very savvy investment. I think, yes, the ETFs are a very significant bottom line in your demand/supply balance, and this will instill volatility. So not only could there be upward pressure on PGM prices, but you’ll see a roller coaster of very sharp up and down movements, as this thing continues to play out.

That in itself gives investors a fantastic opportunity to trade. There’s nothing more boring for an investor than a very stable price that moves a tiny percent over a certain period of time – it’s like watching paint dry. Of course, you could lose your shirt very quickly, too! So I’d say PGM ETFs are not for the faint of heart, and they’re not for the inexperienced. But there are enormous opportunities coming in this industry.

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Source:Mining-Energy Trouble in South Africa