Due to some foul play by industry insiders and misinformation by the financial media, we believe silver is likely the most undervalued physical asset available to investors today. Over the past decade, the ETF SLV has siphoned off a significant amount of demand from both the physical silver market and the mining shares themselves.
The COMEX has also regularly been used to manipulate the precious metals, through margin increases, massive selling during holiday hours, and the fact that the futures market just doesn’t have the metal to support all of the trading that goes on.
In the end, this is going to be about supply disruption, in the face of surging demand for monetary purposes. It’s true, silver is used for many industrial purposes, including things like healthcare, pharmaceuticals, water treatment, solar, electrical grids, vehicles, phones, computers, bandages, RFID chips, high-tech weaponry, and thousands of everyday uses, but the biggest increase in demand we are seeing is coming from investment demand.
On the supply side, silver and many metals and minerals are experiencing serious supply disruption. In a high silver-producing country like Canada, silver production is down 31% year-over-year!
Year to date, Mexico is down 4%, Chile 4%, and Australia is down a whopping 41%! Only 20% of silver comes from primary silver producers… the rest of silver comes from zinc, copper, gold, and other metal mines. This is important, because right now, we have a situation where primary silver producers are now selling silver for market prices, and in some cases, below the cost of production itself.
We are already seeing major zinc mines shut down operations this year in Australia and Ireland, and even more closures are planned for next year. Bloomberg reported record zinc shortages. In Canada, billion-dollar giant HudBay, in their last investor conference call, literally stated that one of their most profitable mines, the 777 mine,”was now approaching the end of its life.”
This is important to note, because even in the face of falling demand, commodity prices can rise if there is a supply shortage.
The equation is simple: is supply shrinking faster than demand? However, in silver’s case, supply is shrinking dramatically from both silver mines and other metal mines, and demand is soaring due to its monetary history.
Here are the raw the numbers for total supply for the past 5 full years. This includes mine production and recycled silver.
2010 – 1.1 billion ounces
2011 – 1 billion, 41 million ounces
2012 – 1 billion ounces
2013 – 1 billion
2014 – 1 billion, 60 million ounces
2010 – 1 billion ounces
2011 – 1.1 billion ounces
2012 – 963 million ounces
2013 – 1.1 billion ounces
2014 – 1 billion, 60 million ounces
Hidden in those numbers is scrap supply, which is in a full-blown collapse. In 2011, 258 million ounces came from scrap. By 2014, the number was down to 168 million ounces, falling 3 consecutive years.
Mine supply went from 754 million ounces to 819 million ounces, completely filling that void. However, as of 2015, we can clearly see that the mine supply will begin to fall for silver. At the same point in time, recycled silver continues to fall through the floor.
Demand for jewelry, silverware, and industrial fabrication -- ALL of these -- are still higher than they were in 2010. Where we are seeing a major increase is in coin and bar demand, which has exploded from 87 million ounces in 2009 to 245 million ounces in 2013, and 196 million ounces last year.
Unlike many other commodities, silver is NOT seeing a decrease in demand. It does have a falling supply, including its future pipeline, where exploration, for the most part, has been halted industry-wide. With supply tight and future supply shrinking, one only has to wonder if demand will let up in silver, or if what we have seen thus far for its increase will continue… or if we may even see a tsunami of demand…
The perfect catalyst for silver to roar through the $50 mark is here, and it is happening in 2016. Demand is surging, supply is contracting, and there are plenty of likely catalysts to bring a renewed wave of demand for silver coming in 2016.
Physical silver is a screaming buy at these levels, and so are some of the higher-quality mining shares. Look for a special email from us this weekend for our top precious metal mining company that we believe will deliver high profits for 2016.
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