The Nomad Economist
Premiered Jan 14, 2022
With everyone focused on gold as an investment vehicle, many have ignored a metal that is 20 times rarer.
Most investors assume that because silver is almost 50 times cheaper than gold, it’s more abundant. They are dead wrong. The world has been drawing down its above-ground supply of silver for decades, diminishing the only source of what is available for investment.
Only now have we begun to collectively recognize silver as a solid investment. While gold is rarer below the surface, silver is more rare and undervalued above ground.
Silver has been operating at a supply deficit for many years, and I think it’s only a matter of time before spot price reconciles with the true value of this beautiful bullion.
Silver is 17.5 times more abundant in the Earth’s crust than gold. But the amount of above-ground gold available far exceeds that of silver. To date, over 1.5 million tonnes of silver have been mined. The industry has consumed 90% of mined silver, leaving a huge opportunity for a commodity shortage in the years to come.
Mining for silver specifically has dramatically declined. In 2017, the majority of silver was mined as a byproduct of other metals, like copper and lead. For every 12.5 tonnes of Earth, there is 1 gram of silver. This ratio, combined with the extraordinary low spot price of silver, makes mining the precious metal less profitable and less appealing than many other metals.
This mining shortage has the potential to create an enormous industry shortage of silver. In 1950, there were 10 billion ounces of available silver above ground. By 1980, that number shrank to 3.5 billion. And today, no significant government stockpiles of silver exist anywhere in the world.
The exact opposite is true of gold. The world currently produces about 700 million ounces of silver per year. Where does it all go? Believe it or not, most of it winds up as garbage. We literally throw billions of dollars’ worth of silver in trash bins every year.
Silver is required in the production of thousands of products: CDs, cell phone batteries, calculators, printed circuit boards, hearing aids, electronic switches, TV screens, catalytic converters, inks, computer monitors, RFID chips, etc. Once any of these items have served its purpose, it generally gets tossed. And it’s simply more expensive to recycle the silver from these products than it is to dig more out of the ground.
I expect that the world’s dumps will be a precious source of resources like silver in the future. The difference between the metals is that gold is produced, but it’s not consumed. While gold is a highly-desired item, it’s not an industrial commodity. In other words, gold is desired, but silver is needed.
All of the gold that has ever been mined is basically still around. Studies suggest 98% of all gold mined throughout history is still available in the form of coins, bars, artifacts, and jewelry.
But silver is different. From 1990 to 2000 alone, over two billion ounces of silver disappeared from the market to consumers. Despite the lack of global stockpiles, new technology will continue to discover more industrial applications for silver, putting a further strain on world supplies.
Consider the new photovoltaic industry as an example. In China, the production of photovoltaic solar panels has doubled every single year since 2003. The demand for silver from the global photovoltaic industry has soared in the past few years, and global demand is expected to reach 150 million ounces in the coming year, just to satisfy the photovoltaic industry.
But to widen the supply deficit, even more, the Silver Institute forecasts industrial uses of silver will rise sharply over the next five years. The organization estimates that by 2015, the demand for silver from industry will increase 36%.
At the highest level, silver is used in industry, in jewelry, and as an investment (and/or wealth preservation). Together, these three categories represent more than 95 % of annual silver demand.
So then, why is the spot price of silver so low? Why is there a 68:1 gold to silver ratio.
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