A new report this week by the Beijing Antaike Information Development Co, an information center on the Chinese metals and industries markets, provided some good news for silver prices.
According to the company, analysts forecast China's silver demand to increase as much as 10% in 2013 from investors looking to preserve their wealth.
In an Oct. 22 Bloomberg News interview, Shi Heqing, an analyst at Beijing Antaike, said silver's demand could increase to 7,700 metric tons next year after incurring a 6% to 8% rise in 2012.
Where's the demand for silver coming from? Around 33% is from jewelry and coins, with the remainder in industrial use for photography, solar and electrical appliances, said Antaike analysts.
This is a record level for Chinese silver demand – and good news for silver investors since China is the world's second-biggest user of the metal.
China's Boost to Silver Prices
Even in these tough economic times for the country, Chinese investors are still buying silver.
Shi said to Bloomberg, "Chinese investors want hard assets such as silver, especially when it's cheaper than gold and requires less funding. Many producers and investors have hoarded the precious metal in the form of ingots or unwrought silver."
It's also been a good year for silver jewelry sales in China with a 19.3% jump during the first eight months as compared to the previous year, noted Shi.
Yang Guohui, president at Hunan Yishui Rare & Precious Metals Recycling Co., said earlier this month, "I'm bullish on silver, so I personally have stockpiled three tons of it at home."
His company sits in Yongxing County,Hunan province, home to about 20% of China's silver.
Keep in mind there's a $40 per kilogram spread between Chinese and overseas silver prices thanks to import duties and transportation costs, said Guan Bingren, a trader at Shanghai Hedge International Trading Co., to Bloomberg. The premium had increased to $200-plus in May 2011 as investors bid up silver on the Shanghai Gold Exchange from a speculation "frenzy," added Guan.
In addition to its use for jewelry, silver is also used for solar panels in China. A possible solar industry recovery could help silver's demand and by 2015 the government has targeted 21 gigawatts of solar-power installations; this compares to an installation of 2.6 gigawatts in 2011, according to Bloomberg.
US Silver Prices
Silver prices last week started with falls to a new low, but the bulls entered the market late on Monday and the metal closed at $32.45 with a $0.38 rise.
A bull visit was short-lived thanks to news from Europe and the two-day FOMC meeting, both of which dealt silver prices a blow.
But after its three-day down trend, on Thursday December silver was back on the rise, coming in approximately $0.50 higher to $32.12 after US markets ended their day. New York spot silver closed at $32.11, a $0.38 rise.
While bears appear to be lurking around the silver market, looking ahead to 2013, looks like silver prices should be on the rise thanks to China.
Deborah Baratz is a contributing writer for Money Morning.