RE: Silver DD Investment Case29 Jun 2021 23:40
Part 2
Never forget that every oz of silver in the world is already owned by someone. When people talk about “new” supply coming on the market, that has to be someone who wasn’t willing to sell at the old price but is willing to sell at the new price.
Although there has been much more silver mined through history, silver inventories have been chipped away for decades by industrial consumption, while gold inventories have grown. Don’t forget that although gold has grown, so has the human population, and especially the population those with enough wealth to own gold or silver.
The whole mining industry has been slumping for a very long time. Discoveries of new significant deposits are not only down, but new additions to PM reserves fail to add as many oz as are produced each year. If you consider that it takes years between exploring, drilling, permitting, more drilling, and construction of a new mine, there could be a very big lag between the price going up, and any significant new supply entering the market.
Some people say that if the price goes up any significant amount, a flood of silver will come in from old coins, silverware, jewelry, etc, and correct the problem. In 2011, when silver hit $50/oz, the amount of silver recycled, went up about 50%, from around 100M oz to 150M oz, but that increase was only a small fraction of the mine supply (over 800M oz), so the broader supply demand picture didn’t really change much. There’s still a huge amount of silver in coins, silverware, jewelry, etc, but if it didn’t come back into the market at $50 in 2011, why would it come out of hiding now, for less? Also, although there are still lots of old silver teapots and spoons, they don’t make a lot of new silverware and every year that stockpile shrinks as old spoons get melted down. Much of the silver used in the “silverware” portion of the current demand pie, is used for electroplating, and that silver is never getting recycled.
Over the past several decades, some of the supply demand imbalance in the silver market has come from governments eroding their silver stockpiles. Many countries used to make coinage from silver, so they had to keep stockpiles, both functionally for making more coins, but also as a strategic and central bank asset. Today, the US, Canada, UK, and most other developed countries, have sold the majority of their silver reserves decades ago. The US government had 350M oz in 1970, and around 50M oz from 2006 to today.
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