Silver Shortage Myth?

I discuss why there isn’t a silver shortage contrary to what many pundits are telling us.

9 comments to Silver Shortage Myth?

  • David Richardson

    When one looks at the huge numbers of ounces that flow into the Comex, including the last few weeks [I assume new silver from refiners; most likely countries of origin Mexico and Peru], it is hard to think about a shortage. “Over at the Comex-approved depositories on Tuesday, they reported receiving 672,681 troy ounces of silver.” From a May 2nd article http://www.caseyresearch.com/gsd/edition/junior-mining-stocks-see-record-insider-buying

    Shortages are relative to the type of silver business; miners, refiners, wholesalers, retailers, and depositories see the supply chain differently. And some may be holding back inventory until prices rise if they can wait. When contracts are in place to supply depositories or other buyers, and the countries with the most silver production are developing nations needing uninterrupted income, they will sell and they renew contracts; even if spot prices are manipulated to a point that is unfair to those countries.

    Shortages? Who knows for sure. My guess is Sprott and others that have contacts for information about what is going on with mining, refining, supply chain to mints, etc. have the most accurate picture of the supply/demand fundamentals.

    I suspect also if these entities that sell 100+ paper ounces for every physical ounce they have can get supply enough for their fractional reserve game, the manipulation of price will go on. And as noted theirs doesn’t come from a mint or retailer; they have their own sources.

    I do think silver will cost a lot more dollars per ounce before this decade is out. That may be kicked off at first not due to shortage but from those seeking refuge out of fear of holding fiat currency. I avoid articles and interviews that pick a price figure in 2013 or some other point in the future, because they are guessing or postulating.

  • Dave Trickett

    First, there is no such thing as “supply” or “demand.” There is only “supply at such and such price,” and “demand at such and such price.” I.e., there are different magnitudes of supply at different offered prices, and different magnitudes of demand at different offered prices (to sell at). This is very important to remember, for all goods and services.

    Your explanations sound reasonable enough, but think about what you are actually saying… Essentially, those who have silver that they COULD sell, are simply not selling at the paper clearing price. If you offered them $10 above spot, some of them would sell. If you offered $20 above spot, there’d likely be plenty available. What you are actually doing is offering some explanations for why the clearing price (the price at which physical silver actually becomes available) is higher than the “spot” price.

    The reason I am bringing this up is that it is somewhat misleading to claim, simply, that there is no shortage of silver. Indeed, there *is* a tremendous shortage of physical silver at the current spot price… Given that there does not appear to be a shortage of physical silver at higher prices (For example, I would be willing to sell $1000 face value of pre-1965 dimes for 50 times face value right now), the obvious conclusion is simple: the spot price does not reflect the clearing price for physical silver. I think that it would be useful for you to make a short video about this and on terminology in general. I would appreciate your take and presention on this.

    I do recognize that what we are really talking about is the convergence or divergence of the paper market from the physical market, and the fact that arbitrage and other factors can create significant divergence for what, in a perfect world should be the same price (with transaction costs applied). But at some point, and we appear to be at this point, the two really do become different commodities.

    One is the promise or pledge to deliver silver. The other is the real thing. If the promise/pledge is deemed by enough potential buyers to be valid, then there will be little or no price divergence from the physical. (Think back to the origin of “precious metalsmith bank notes” back in the 1600s or so – I may be off by a century or so, and I am not talking about the Chinese origination of paper money.) The fact that there is divergence suggests to me that what has actually happened is that the collective entity loosely known as the market has concluded, for the present, that these are in fact two separate commodities, and priced them according to their perceived merits…

    Thanks for all your work!

  • Scrapper

    When we see the dealers buying at $3+ over spot I’ll believe there is a shortage.

    • Rainmaker

      Check out the buy prices at Tulving dot com. Seeing is believing.

    • David Richardson

      According to something I heard Mike Maloney say dealers are paying higher prices to wholesalers than they were. That was also stated to me in a private email from a Canadian who runs a bullion store, and writes a regular column. There are relative shortages from mints, wholesalers, and some dealers [compared with before price smash and buying frenzy]. It appears the posts above are from people who know more than I do about the commodities business and other perspectives as well.

      One of my degrees is in Geology. I tend to view shortages from that perspective. The supplies of non-renewable natural resources that are rare will decline, and the costs of mining, refining, etc. will increase of course. There will be a lot of “mineable” copper for quite some time. Not so with rare earth elements, silver, gold, and some other elements.

      People or corporations holding silver will of course release more to the market if and when they can get a lot more dollars, unless of course the dollar is greatly reduced in buying power by that time.

  • Pinto Currency

    Retail availability is not the measure of shortage.
    It is wholesale availability – we will see over the next few weeks how the lease rate and backwardation measures develop.

  • silvermiddle

    Is the glass half full…or half empty?
    Silver is a long term investment now…in my opinion. This of course could change based on new industrial uses.
    Okay…so uses in photography are in decline, but that function was replaced with digital photography which borrows silver that could be recycled. Or…the Samsung washing machine that uses silver ions to sterilize
    Clothing (basically) and reduce other costs (energy and product) which is lost silver forever, slowly
    After annual industrial demand…..you could fit the remaining physical silver in the average American bedroom. Which globally seems small…and maybe my Calculus sucks…not sure?
    So..long term depletion is evident….just not in the next decade…industrial use is covered by annual minning..and in the coming recycling..?? The time “NOT to buy silver was late 2009 to early 2013. If you are one of those investors…try penny stocks. 20 bucks an t-oz is OK…but save and buy 200 or more ounces to reduce premium losses that will occur.

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