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THE SOLAR SILVER THRUST
By Jeff Clark of Casey Research



In early July, Japan set a premium price for solar energy that was three times the rate of conventional power. This meant utility companies would be paid three times more for electricity sourced from solar. It's widely expected that the premium will ignite the use of solar power - and solar uses a lot of silver.



Silver Demand from Solar Panels



As you may know, silver is used in photovoltaic (PV) technology to generate solar power. A typical solar panel uses a fair amount of the metal - roughly two-thirds of an ounce (20 grams). To put that in perspective, a cell phone contains around 200 to 300 milligrams (a milligram weighs about as much as a grain of sand). A laptop contains 750 milligrams to 1.25 grams.

Photovoltaic technology is relatively young, but each year its use is growing rapidly. Just since 2000, the amount of silver consumed by solar-panel makers has risen an average of 50% per year. Demand grew from one million ounces in 2002 to 60 million ounces in 2011. Last year, demand from the PV industry represented almost 11% of total industrial demand for the metal (excluding jewelry). According to statistics from CPM Group, demand grew by 11.2 million ounces, the strongest volume growth of all major sources. And this was before the Japanese announcement was made.





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The largest end-user of solar panels is Germany, though that's changing. Last year, Germany accounted for 27.3% of global installations, but due to subsidy cuts, solar-panel installation capacity dropped from 7.7 gigawatts to 7.5. But in the big picture, that decline was offset by increases in China, France, Italy, the UK, Japan, and the US.



In their 2012 Yearbook, CPM projected a slight decline in silver demand from solar panels due to a reduction of new installation in Europe and oversupply from excess production in China. But with the initiative from Japan, that estimate is almost certainly low.


Japan Gives New Life to the PV Industry

After the Fukushima disaster, Japanese authorities wanted to cut the nation's dependence on nuclear energy. Approximately 30% of Japan's power was generated by nuclear before the catastrophe; now the focus has shifted to other green energy alternatives, including solar.

The new tariffs might work. The suggested rate of ¥42($0.53) per kilowatt hour (expected to be maintained for 20 years) is more than twice the rate in Germany (€0.17 - or $0.246). Bloomberg estimates that this generous increase will create $9.6 billion of investments in Japan alone.

Here's what that amount of money would do to the sector: there were approximately 1.3 gigawatts of solar capacity installed in 2011, but experts anticipate that number to nearly double to 2.3-2.5GW for 2012, and hit 3.0GW in 2013. According to SolarBuzz, Japan could see 28GW of solar capacity installed by 2020 and 50GW by 2030.

That's a lot of solar panels, and - even assuming improved efficiency - it'll take a lot of silver.

Price Factors



During recent years, solar panels have become significantly less expensive and more end-user friendly. However, the fact that each panel contains a lot of silver can make it susceptible to large price fluctuations. If the silver price gets too high, manufacturers might seek alternatives, of course, but they can't easily eliminate use of the metal. And if the product gets too expensive, demand could fall. Companies are already looking for ways to reduce the amount of silver used in PV panels or to replace it with another element.

At the moment, there are two main solar panel technologies on the market. The traditional one is "thick film," where silver is the main component. The other one is a less-expensive "thin-film" method which replaces silver with another material, cadmium telluride. The development of thin-film solar panels has picked up due to its lower price, but the technology is less effective. Thick film is more efficient in gathering energy from the sun, and this type of panel still prevails on the market. CPM reports that it accounted for roughly 91% of total installations last year, and analysts expect thick-film panels to maintain their dominance for at least the next several years. Further, both panel types use silver outside of the cell for reflectivity and other functions, so the odds of silver being eliminated from solar panels entirely are very low at this time.

For investors, this means that at least in the near term, the solar industry will continue to use silver-intensive technology, thus supporting growing industrial demand for the metal.

But that's not all, folks...



New Era for Silver Usage



For a long time, silver industrial demand was dependent almost entirely on one industry: photography. Silver-based camera film dramatically changed the structure of silver demand at the beginning of the 20th century. By that time, silver had primarily been used in silverware, jewelry, and as money. At its peak, photographic demand accounted for about 50% of the market.

But this is the 21st century, and in spite of substantial declines in film use, the modern world has developed many other important uses from silver's unique properties. Probably the most important shift is that industrial demand for silver no longer comes from a single field, but from numerous applications - almost too many to count - virtually none of which show any signs of slowing. This fact makes the forecast for silver demand more positive and stable; when one industry drops, others may offset the decline.



Here's a smattering of uses, many of which are still in their infancy:

Solid-state lighting (SSL), which uses semiconductors to produce light with either light-emitting diodes (LED) or organic light-emitting diodes (OLED), rather than the more traditional electrical filaments. SSL is used in traffic lights and some car headlamps.
Radio frequency identification (RFID) uses printed silver ink made from silver nitrate. RFID chips have become so ubiquitous, it's hard to find any new product that doesn't have at least one - even if that's only in the security tag affixed to the package.
Supercapacitors and superconductors, autocatalysts, and new types of more effective batteries.
Medical applications like aseptic coverings for surgery, traumatic wounds, antibacterial bandages and fabrics, dental amalgam, and silver salts that help prevent infections in newborns. It's also used as a cure for dermatological problems and certain types of cancer.
Water purification systems, washing machines, air conditioners, and refrigeration. NASA used silver to sterilize recycled water aboard the space shuttle.
Food packaging and preservation. Manufacturers of commercial ice machines are using silver-embedded hoses, clamps, pipe fittings, and other places where gunk can build up and harbor bacteria. Meat processors use silver-embedded tables, grinders, tools, and hooks. Silver is used to keep fruit, vegetables, and cut flowers fresh while in transit.
Public hygiene, such as antimicrobial protection of telephone receivers, door handles, bed rails, toilet seats, counter tops, children's toys, socks, underwear, bed linen, towels, etc.
Other wide-ranging consumer products used every day: makeup, antibacterial soaps and kitchenware, hand and air sanitizers, and facial creams and masks.
Though the total contribution from these new silver uses is relatively modest, the Silver Institute rather dryly forecasts that "there is a potential for a number of these segments to boost their silver consumption." As you can see in the chart below, its forecast for silver demand for new industrial uses projects that the biggest increases will be in batteries, SSL, and RFID.





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The primary uses for silver are growing, too. For example, the automobile industry is increasing consumption, due to both increases in the number of vehicles manufactured and the expanded use of electrical contacts. As the number of improvements in vehicles increase, so does the amount of silver used. For example, silver is used to control seat and mirror adjustments, windshield wipers, and manage navigation systems.

Based on their research, the Silver Institute forecasts that industrial usage will rise to 665.9 million troy ounces by 2015 and account for more than 60% of total fabrication demand.






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What It Means for Investors

The bottom line on the above is that the growing number of industrial applications for silver represents a long-term shift in this market. Increasingly diverse usage is not only here to stay but will continue to grow, supporting the price and having an impact on the balance of supply and demand.

For investors, the thing to keep in mind is that while long-term prospects for silver prices are extremely bullish, to the degree prices are driven by this increased industrial demand, they are vulnerable to economic correction/contraction in the short term.

Invest accordingly.



Jeff Clark is the editor of BIG GOLD, Casey Research's monthly advisory on gold, silver, and large-cap precious metals stocks.



For ongoing guidance about physical gold and silver, as well as the large-cap precious metals stocks, try BIG GOLD today for just $79 per year, with 3-month money-back guarantee.


QUESTIONS FROM OUR CUSTOMERS


How Can I Safely Store My Physical Gold and Silver?



Once you've purchased physical gold or silver, the next question is where to keep it. While there may be some peace of mind having your bullion in a safe at home or in your bank's safety deposit box, there are also compelling reasons to hold your precious metals in a dedicated storage facility.


Euro Pacific Precious Metals recommends Delaware Depository Service Company (DDSC) and International Depository Services (IDS) as secure storage solutions for our clients. DDSC has facilities in Delaware and Zurich, Switzerland, while IDS stores metals in Toronto, Canada. Both have excellent reputations within the precious metals community. These private storage facilities are audited numerous times by external firms, as well as undergoing continuous internal audits, to ensure the safety of your investment. Should a crisis occur that causes banks to close, depositories such as DDSC and IDS are more likely to remain open, allowing clients to access their metals at a time when safety deposit boxes or regular bank withdrawals may be unavailable.



Most importantly, every ounce of silver or gold deposited at these recommended storage facilities is fully allocated, which means all the metal is 100% physically present at the storage facility. This isn't a fractional reserve system, where just a small portion of your wealth is kept on hand while the institution gambles with the rest. Your metal remains physically on-site, and available to pick up, ship, or sell back to us whenever you choose.



Dedicated storage also allows investors to diversify geographically. As many Euro Pacific customers agree, governments can be volatile - especially in times of economic crisis. By keeping some of your holdings in historically stable countries like Switzerland or Canada, investors are able to hedge against political risk here at home.



The ease of selling and buying metals is another excellent reason to consider dedicated storage. When you purchase metals from Euro Pacific, we can ship your purchase directly to your chosen facility as soon as we confirm receipt of your payment. Shipping is free within the United States and at only a minor additional cost to Zurich and Toronto. Euro Pacific Precious Metals maintains accounts with DDSC and IDS so that your metals can be easily sold back to us without the cost of shipping or insurance. All it takes is a phone call to lock in the price, after which ownership of the metal will be transferred within 48 hours, while a check is sent or funds are wired to your account.



Even better, the cost of ongoing storage is also very affordable. Beginning on the day the metal is received, storage with DDSC is prorated at a cost of 0.5% of the stored metal's average daily value, while IDS charges 0.7%. Clients are billed twice a year, every January and July. For an additional cost, segregated storage is available, meaning your metal is kept physically separate from all the other holdings in the facility.



With programs like these, dedicated gold storage is now convenient, safe, and cost-effective. There are no fees to apply for or to open the account, and the application is a single page. To learn more, call our Precious Metals Specialists today at 1-888-GOLD-160 (1-888-465-3160).


THIS MONTH IN GOLD

Bridgewater's Dalio Likes Gold, Breaks From Buffett
Forbes - Ray Dalio, manager of one of the world's most profitable hedge funds - the $120 billion Bridgewater Associates - likes gold, sees it as a useful inflation hedge, and thinks it belongs in any well-diversified portfolio. For Dalio, gold is "the alternative money." Concerning Warren Buffett's stated aversion to gold, Dalio believes the Oracle of Omaha is "making a big mistake." His pronouncements bring Dalio into line with peer hedge fund juggernauts George Soros, John Paulson, and David Einhorn.
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Bank of America Sees $2,400 - no - $3,000 Gold

CNBC and Financial Post - Bank of America Merrill Lynch is internally conflicted about gold at the moment. Fortunately, only in a good way. In mid-September, Francisco Blanch, a global investment strategist with the bank, claimed the Federal Reserve's open-ended QE3 would propel the yellow metal to $2,400 an ounce by late 2014. A week later, Stephen Suttmeier, an analyst with the bank, wrote in a note to clients that the secular trend more likely suggests around $3,000 an ounce by early 2014.

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Deutsche Bank: Gold Is Money
Deutsche Bank - Daniel Brebner and Xiao Fu, analysts at Deutsche Bank AG, assert in a new report that anyone who thinks gold is not money is seriously mistaken. They see the yellow metal as money for one primary reason: most of the world's major central banks hold it as a component of their reserves. Going further, Brebner and Xiao distinguish between "good money" - gold - and "bad money" - fiat currencies. "In describing gold as such we refer to Gresham's Law - when a government overvalues one type of money and undervalues another, the undervalued money (good) will leave the country or disappear from circulation into hoards, while the overvalued money (bad) will flood into circulation."

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Barclays Opens New Gold Vault in London
Reuters - In September, the British banking giant Barclays opened the first bank-owned bullion vault that London has seen in over five years. Barclays expects demand to come primarily from institutional investors and sovereign funds. The launch reflects the ever-growing appeal of precious metals among investors. For security reasons, the vault's location is top secret.

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Wealthy Investors Pile into Physical Bullion

Bloomberg - Deutsche Bank AG's asset and wealth-management unit reports that more and more high-net-worth individuals are expressing interest in protecting their wealth from central bank-induced inflation by owning gold. Not all gold is equal, however. Physical trumps virtual. "For our ultra-high-net-worth clients, and a growing number of our high-net-worth clients who have significant liquidity, they are becoming increasingly concerned to have at least some of their exposure to this asset class in the form of allocated physical bullion itself, rather than the indirect exposure that an over-the-counter product offers," says Mark Smallwood, head of Asia-Pacific wealth-management solutions.

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EM Central Banks Yet Again Buy More Gold
MarketWatch - In what has become a monthly affair, emerging markets' central banks continued to boost their gold reserves in July to mitigate the risk associated with holding too many dollars and euros. Turkey added 44.7 metric tons, Russia added 18.6 tons, South Korea added 15.5 tons, and Kazakhstan added 1.4 tons. Ukraine and Kyrgyzstan added 0.2 and 0.1 metric tons, respectively. Market participants say the purchases are an important support for the price of the yellow metal.

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