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What impact will the "China Factor" have on the silver market?

Doug Dobbs, Phillips Baker, Ross Beatyy
January 6, 2006
Video Transcript

Host: Certainly, silver is a critical commodity needed for worldwide economic development. In fact, our experts report that worldwide demand for silver is rapidly increasing as silver plays a vital role in the expanding economies of the 21st century.

Doug Dobbs: The rising middle class of China wants to own everything that we own already here in the United States. They want to own cellphones, they want to own flat screen TVs, and they want to have the benefits of modern technology. They would also like to have clean energy, so solar panels may be installed in those areas that it's appropriate. So this is a large demand source for silver that will also grow as the middle class of China grows as well. Again, we're talking hundreds and hundreds and millions of people, middle class by itself, that will be larger than the entire population of the United States.

Phillips S. Baker Jr.: In that economy, it's just remarkable the growth that's happening across that country where people are going from... well, we had a guy who grew up with a dirt floor and he now lives in a house that's 3-stories, and has indoor plumbing, and all the things that we have in the Western world, they're starting to get there. So their consumption of silver is happening just in terms of increasing their standard of living in their houses, but they're also going out and buying jewelry.

Mike Maroney: China realizes that paper money is fatally flawed. The government itself has promoted the ownership of silver and gold to the population, because they believe that it makes sense to get out of some sort of paper money and own something real. Quite frankly, what we're going to see as that economy expands is the massive amount of consumers that exist in China will be demanding more and more products and more and more currency alternatives such as silver and gold. So that's why, inevitably, as those economies grow. China, India, Brazil, those consumers will be buying industrial application products that use silver and will be demanding to own silver and gold as a hedge against paper currency.

Doug Dobbs: The difference between those countries and the United States is they're significantly larger and they're emerging so they're growing. So the purchasing power collectively as a country is growing also very dramatically. Recently, China just surpassed Japan as the second largest GDP in the world. So you're developing this incredibly large market in China for silver as a stored value. They may keep it in a bank or they may keep it at home, but when you're talking over a billion people, it doesn't take a large amount of movement to create a ground swell of demand. So now they have a system that's more attune to developing savings in precious metals. They have a silver exchange in China now, so people can buy it more readily. There's a greater supply that's available to the people of China, whereas, even just a few decades ago they weren't even able to buy any precious metals. You see that in India as well with the new silver exchange in India, again hundreds of millions of people over there growing up in this emerging economy. It's a demand source that largely hasn't been there before, that will be there for the foreseeable future and the demand from the United States and Europe will be competing against that to get their precious metals. This is the sort of thing that gives, I think, a long-term picture for a demand for silver that probably isn't going to go away any time soon.

Ross Beaty: I am very, very much of the view that Asia growth in demand is just beginning. You know, there's 1.3 billion Chinese, there's a billion Indians, there's 200 million in Indonesia, I mean, it's a vast source of demand for all metals, not just silver. It's an economy basically that's moving from an agriculturally economy to an industrial economy. Their consumption of most metals is a tiny fraction of what it is in North America. Even if they went to only 1/50th or 1/40th of our consumption per capita, that still represents a huge increase in demand pretty much across the board for silver, for gold, for lead, for zinc, for nickel, and so forth. It's a secular event, it's a once in a lifetime event of people moving from the villages in the countryside into cities, needing housing, needing all the... around housing, the utilities, the apartments, the plumbing, the wiring, and so forth, and all of that uses metals. It's not by any means over. There's a large new middle class in China, but they're still very much less developed than anything like America or Canada even 100 years ago. So a long way to go, a lot of metal consumption yet to be seen and this will drive metal prices, especially silver, because of course, silver spans the gamut for a long time to come. I'm very bullish on all metals, particularly silver.

Host: Is it any surprise then that at this time in history when silver is in such short supply and the entire world is relying more and more on silver, that it appears, that the silver bull market is, indeed, gathering steam? Beyond these economic factors, there's yet another powerful catalyst that our experts report is likely to drive the silver bull market even higher.

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