Silver Supply Deficits
Thirty Years Of Silver Supply Deficits by Jeff Nielson, Sprott Money
In a recent announcement from the media “consultants” who provide us with most of our official data for precious metals markets, we were told that the silver market just experienced a supply deficit for “the 3rd consecutive year.” However, as recently pointed out by another noted silver commentator, Steve St. Angelo, the same consultants have produced data showing that the silver market has been in a supply deficit for twelve consecutive years – four times as long as what they just finished publicly claiming.
Is twelve consecutive years of silver supply deficits the end of the story? Not quite. If we go back twelve years in time, this brings us squarely within the timeframe of an old chart (see above) that will be familiar to many readers.
CIO Of One Of The World’s Most Successful Hedge Funds Presents His Top Long And Short
Egerton Capital was co-founded in 1994 by John Armitage. Since then, the firm has yielded huge profits for its investors. Some estimates put the total value of investing earnings at over $20 billion, making it one of the most profitable hedge funds of all time. Q3 2020 hedge fund letters, conferences and more SORRY! This Read More
Twelve years ago, we were supposedly near the end of a 90% nose-dive in silver inventories, where inventories fell by roughly 130 million ounces per year. Those inventories certainly wouldn’t have fallen at such a precipitous rate if there was a “surplus” in the silver market during those years. This relentless plunge in inventories represents another long stretch of supply deficits, which (according to the chart above) date back to 1990. Suddenly, the consecutive deficits in the silver market stretch to twenty-five years, a full quarter-century.
Arguably, however, even a quarter-century of consecutive supply deficits in the silver market is still likely an understatement. Before addressing that argument, it’s important to note the supposed turnaround in silver inventories that the previous chart indicates. It never happened.
As has been explained in a number of previous commentaries, it was in 2005 that the bankers came up with one of their largest and most-notorious frauds in precious metals markets: their so-called “bullion-ETF’s.” As one aspect of this fraud, they began pretending that the “units” (of silver) in these funds, the property of investors, represented additional “inventory” in the silver market.
The Big Banks (and primarily JPMorgan) claim to be holding the silver purchased by investors in these funds, as trustees. At the same time, we’re told that this same silver is an “inventory” (i.e., available for purchase). In the real world, when a person buys an ounce of (physical) silver, inventories decline by one ounce. In the paper fraud world of the bankers, when someone buys an ounce of silver (via a bullion-ETF), inventories increase by one ounce.
Along with that analysis, we have the additional evidence presented at the beginning of this commentary. From 2005 to present, the silver market has remained in deficit, officially, while global demand (especially in India) has been rabid, and while China has gone from being a large supplier of silver to a large net-buyer.
In 2005, the world was nearly out of silver, and the market has remained in deficit every year since. At the “burn rate” shown in the chart above, the world would have run out of silver some time in 2007. So where is (was) the default?
This was the subject of a previous trilogy of commentaries, which postulated a “secret stockpile” for silver. The data above says that the silver market must have defaulted in 2007. It didn’t. The market has remained in deficit every year since. The silver to satisfy these perennial deficits had to come from somewhere. Readers interested in this subject can refer to those earlier commentaries.
Returning to the present subject, what evidence is there that the supply deficit in the silver market extends even beyond twenty-five consecutive years? To support this position, we need to refer to an even older chart, a longer-term chart, which reflects the more extensive era of manipulation of this market.
Back in the early 1980s, after the explosive rise in the price of silver (and gold), which culminated in 1980, the banking crime syndicate then crashed this market, taking the price of silver back down, not to previous levels, but to a 600-year low, in real dollars.
We know this was the result of intentional fraud/manipulation and not merely a “boomerang” from the previous 1980-high. We know this because after the price of silver hit this ultra-extreme low, the banking crime syndicate held the price at that level for a full decade. It was only after that point in time that their chokehold eased, and the price of silver began inching higher.
What happens when you push the price of any product to a 600-year low? You bankrupt most of the producers of that product. This is what happened in the silver sector. Well over 90% of all silver miners were driven into bankruptcy.
For over 4,000 years, most of the world’s silver was produced by “primary” silver mining in silver mines. We obtain almost all of our metals through primary mining. But since the banksters crashed the silver market to a 600-year low (and all the way to the present), we have received 70–80% of our annual supply of silver as the byproduct of other mining in copper mines, lead/zinc mines, and even gold mines. This practice is yet more proof of serial price-manipulation.
Can any metal with perennially high demand possibly be “in surplus” when the vast majority of supply to that market is indirect, coming from separate mining industries? Before you answer that question, remember that we are dealing not only with “a precious metal” that has high allure/demand in that respect, but also the world’s most-versatile “industrial metal.”
A high-demand market, plus anemic supply (due to perpetually suppressed prices) is an equation that yields only one possible result: supply deficits, year after year after year. Even the (brief) rise in the price of silver to over $40/oz (USD) was not sufficient to reverse the supply deficit in a crippled sector where the supply deficits have lasted for roughly thirty consecutive years.
Against all this evidence (and all this fraud), what do we get from the Corporate media, mouthpieces for the bankers?
The silver market is heading towards a third consecutive year of a physical supply crunch, and although such deficits do not affect prices in the short run, it may push the metal’s price higher longer term…
Supply deficits “may” lead to a rise in price? Hilarious. Perpetual deficits can have only one outcome: default (once the Secret Stockpile is exhausted). At some point, this is how the deficits must end. Simultaneously, the world must have silver. A dizzying array of consumer and industrial products would see their supply dry up with any default in the silver market.
How do you reverse a “supply deficit?” Economics yields only one answer to that question because arithmetic yields only one answer: higher prices. Raise the price of silver high enough and more companies will begin mining it in silver mines, lots more. Raise the price high enough and (eventually) demand for silver will decline.
What happens when you increase the supply and decrease the demand for anything? You produce a supply surplus. The only “cure” for the over thirty years of extreme, criminal price-suppression by the banking crime syndicate is higher prices. The only cure for over thirty years of consecutive supply deficits in the silver market is higher prices – prices that are much, much higher than the absurd current price of under $15/oz (USD) – in order to replenish the totally depleted inventories.
How much higher?
A recent commentary pegged a fair price for silver, today, at $1,000/oz (USD). That estimate was based upon nothing more than an objective, historic metric: the average wage. At $1000/oz for silver, we would have lots of silver mines, and much, much more supply. Once again, we would return to normalcy, where the world gets most of its silver from silver mines.
At $1,000/oz there would be considerably less demand for silver, though declines in industrial consumption would not be as great as some might think. With silver being used in only tiny quantities in many of its industrial and consumer applications, even a price increase of this magnitude would only mute demand.
For some applications, producers and consumers would simply adapt to higher prices, something we are already doing every day of our lives. For other applications, there would be a “substitution effect,” and inferior (but cheaper) metals would be used in place of silver.
Even in terms of investment demand, the effect of $1,000/oz would be different from most readers’ expectations. Certainly, pure “investment demand” for silver would decline, but what about jewelry demand? At $15/oz, silver is regarded as “junk jewelry”: fine for teenage girls, but beneath the “radar” of most adult women (and the men who buy much of their jewelry).
At $1,000/oz, however, silver would no longer be junk jewelry, and suddenly women (and men) would notice that the brilliance of silver exceeds that of gold. Meanwhile, in a world of $1,000/oz silver, the price of gold would inevitably soar to many multiples of that price – at least $10,000/oz.
With gold jewelry priced out of the reach of many (most?) consumers, and with silver jewelry being arguably more beautiful than gold and properly valued, demand for silver jewelry would soar higher, high enough to sustain a price of $1,000/year (as valued in today’s dollars).
After a full generation of systemic crime in the silver market and thirty consecutive years of supply deficits, there will be a reversal in this market, and that reversal can come in only one form: we will see the price of silver appreciate to something resembling “fair value,” one way or another, and that real-world price will dwarf the estimates of most readers (and commentators).