Silver Supply and Demand

Silver Supply and Demand

Demand for silver is up, supply is down – yet the price is falling.

Do the dynamics of supply and demand matter any more?

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Update November 12, 2014: Mexican Silver Miner First Majestic Reports all-in sustaining cost of silver was $19.89 per ounce in the third quarter. Silver price November 12, 2014 – $15.63 an ounce.

Update December 10, 2014: Industrial Silver Demand Projected to Reach Nearly 680 Million Ounces in 2018

Silver Demand Soars

In September 2013 we asked – Is a Gold and Silver Supply and Demand Price Adjustment Coming? In that blog post we noted the increasing silver demand and decreasing silver price.

That same month we began tracking the silver to gold sales ratio as reported by the U.S. Mint comparing the number of one ounce American Silver Eagles sold to the number of American Gold Eagles sold.

In September 2013, the U.S. Mint sold 364 times more Amerian Silver Eagles than American Gold Eagles.

From October 1, 2013 through October 21, 2013 the U.S. Mint has sold 476,500 American Gold Eagles and 42,653,000 American Silver Eagles or 100 X more Silver Eagles than Gold Eagles, far exceeding the 2013-2014 gold silver ratio of about 62:1.

Indeed, 2013 was a record year for American Silver Eagles sales, and a record year for over all silver demand.

Sales of American Silver Eagles in 2014 are on pace to surpass last year’s record sales.

American Silver Eagle Demand

American Silver Eagle Coin Sales 1986-2014

American silver eagles coin sales have increased significantly since 2008. 2013 was a record year for American silver eagle sales. 2014 american silver eagle sales should surpass 2013 levels.

American Silver Eagle coin sales have soared since the financial crisis of 2008.


Final 2014 American Silver Eagle Coin Sales

Admist this surging demand, the price of silver has fallen from a high of $32.23 in January 2013 an ounce to $17.50 in late October 2014. The price of silver is lower today than its 1979-80 average prices.

In September 2013, we surmised that the supply demand imbalance was a temporary market anomaly that would soon adjust. It hasn’t. The price of silver continues to fall as demand increases. The reverse dynamic of declining sales and rising prices has taken place in the real estate market.*

What is causing these imbalances? Quantitative Easing (drives real estate and stock prices higher) and manipulation (drives silver prices lower) – two names for the same thing.

It’s the Fed’s stated policy to keep interest rates low in order to boost the stock and real estate markets. It seems that they have achieved these price increases without a corresponding increase in demand or nominal exchange listed company profits.

Manipulated/Distorted Markets

It appears to be an unstated policy of the Fed and central banks to supress the price of precious metals. We covered the possibility of silver price manipulation here and gave actual examples of it here.

Will ordinary market forces of supply and demand eventually overwhelm what appears to be manipulation?

Here is a breakdown of recent and historic silver supply and demand.

Silver Demand

In recent years the demand for silver has been a little more than 60% industrial with the remainder divided between jewerly, silverware and investment. With the surge in silver coin and bar sales recently, industrial silver demand is now closer to 50%.

Presented below are charts showing silver demand by uses from data derived from each of the CPM Group and the Silver Institute.

Both charts show an increase in demand and a decline in the price of silver.

Silver Demand By Uses 1975-2012 – CPM Group

Silver demand has increased for use in solar panels, silver coins and bars and electronics while silver demand for photography has fallen.

Silver demand for use in solar panels and silver demand for coin and bar fabrication have offset a decline in silver demand for uses in photography.

Silver Demand By Uses 1994-2013 – The Silver Institute

Silver demand the past few years has been driven by a surge in investment demand in the form of silver coins and bars and by steady demand for silver for use in electronics

Demand for silver continues to grow driven by silver coin and bar sales and new industrial uses.

Silver Coins and Bars

Record silver demand in 2013 was led by a 76% increase in demand for silver coins and bars from the prior year.

The largest government mints in the Australia, Austria, Canada, China and the United States have seen rapid growth in their coin sales.

Australia

The Perth Mint, founded in 1899 as a branch of the British Royal Mint, produces a wide variety of silver and gold coins usually featuring Australian wildlife (e.g. Crocodiles, Koalas, Kangaroos and Kookaburra). Silver sales at the Perth Mint have grown steadily the past few years.

The Perth Mint sold over 8.6 million ounces of silver in 2013 and is on pace to sell about eight milion ounces in 2014.

Austria

The Austrian Mint, a subsidiary of the National Bank of Austria produces the Austrian Silver Philharmonic coin which is Europe’s and Japan’s largest selling silver bullion coin with sales over 50 million from 2008-2013.

Canada

The Royal Canadian Mint (RCM) produces a variety of silver Maple Leaf coins. The Canadian Silver Maple Leaf coin was introduced by the RCM in 1988 for collectors.

The Royal Canadian mint has sold over 125 million Silver Maple Leaf coins since 1988 when it was first minted and sold a record 28 million in 2013.

The RCM also produces special issues of the Silver Maple Leaf coin from time to time. Past special issues include Olympic, Anniversary, Wildlife, Chinese Zodiac, Bird of Prey and Canadian Artic coins.

China

The official mint of the People’s Republic of China has been producing Silver Panda coins since 1983.

Approximately 40 million one ounce Chinese Silver Panda coins have been sold from 1983-2014.

In the past few years, China has ramped up its annual production of one ounce Chinese Silver Pandas from 600,000 annually to 8,000,000 a year the past three years.

United States

The United States Mint produces the American Silver Eagle coin from mints in Philadelphia, Denver and San Francisco. The American Silver Eagle is by far the most recognized government produced silver coin and has sold over 350 million since production began in 1986 through 2013.

Last year a record 42.7 million American Silver Eagles were sold by the United States Mint. This year, the United States Mint is expected to sell as many American Silver Eagle or more.

Through October 21, 2014, the U.S. Mint has sold 36,066,000 American Silver Eagles.

Silver Coin Sales

The chart below shows silver coin sales in millions of ounces. You can see the number of sales rising as the black line representing the price of silver falls.

Silver Coin Sales at the U.S., Chinese, Canadian and Perth Mints

Sales of silver coins from the Canadian Mint- silver maple leaf coins, Chinese Mint -silver panda coins, Austrian Mint- silver philharmonic coins,  Australian Mint- silver coins and bars and the United States Mint - American silver eagle coins continue to grow and set records

Silver coin sales from the major government mints continue to surge as the price of silver dips.

The chart above does not include sales from the Austrian Mint or the Royal Mint of the United Kingdom that sold 2,125,000 ounces of silver in the reporting year 2013/2014 up from 560,000 the prior year.

The chart also does not include sales of silver rounds and bars from private mints like the Northwest Territorial Mint, Sunshine Minting Inc. and OPM.

Silver For Solar Energy

China

Silver demand for use in the production of solar panels has been increasing at a rapid rate. A good portion of the demand comes from China.

China has invested heavily in the photovoltaic industry as it seeks to supplement its voracious energy demands and reduce its air pollution problem with solar power. China is the world’s number one consumer of energy but is second behind Germany in total solar power generation.

In addition to manufacturing solar panels for domestic use, China is the world largest manufacturer of solar panels for export.

The photovoltaic cells in solar panels use a silver based paste. Solar manufacturers are projecting to ship a record amount of solar panels in 2014 and the silver demand for the photovoltaic industry is expected to reach 100 million ounces in 2015.

According to Reuters GFMS data, in 2005 China used less than a million silver ounces in producing solar panels compared to 38 million ounces in 2012.

china is using silver is large quantities in its solar panel industry

Solar Panels in Shanghai, China.

India

India is also a major consumer of silver for solar power. India requires over 50 million ounces a year to meet its solar panel manufacuring demand. According to Scrap Monster, one mega Indian solar panel plant will require twenty million ounces of silver a year.

Silver for Electronics

Silver is the best conductor of electricity. As such it is prized for use in electronics of all sizes.
According to the Silver Institute the following amounts of silver are needed in the production of each:

-cell phone .05-.25 grams for a total of 2.6 million to 13 million ounces of silver per year; and
-PC/lap top .3-.5 grams for a total of 3.5-5.8 million ounces of silver per year

Silver used in the production cell phones and computers and all other types of electronics adds up to over 200 million ounces each year.

Silver Jewelry/Silverware

Silver has been prized for its beauty for thousands of years and demand for jewlery and silverware provides about 25% of the overall silver demand each year.

Silver For Anti-Microbial and Medical Uses

Medical Devices/Anti-Microbial Products/Water Filters/Gorilla Glass

Silver has been found to have anti-microbial properties and its demand for use in products such as medical devices, water filters, gorilla glass and anti bacterial soaps and oinments, while still small, has grown quickly in recent years.

Silver For Photography

Photography was once one of the major uses for silver but since the advent of digital photography in the late 1990’s/early 2000’s, the demand for silver for photography has subsided.

Silver Held in ETFs

Earlier this month we reported on the increase in holdings in silver ETFs.

The chart below shows the explosive growth in silver held in ETFs. The largest silver ETF, iShares Silver Trust (SLV) for which JPMorgan acts as custodian, holds nearly 350 million ounces of silver.

Silver Holdings in ETFs 2006-2014

Silver ETFs have not experienced outflows the ways gold ETFs have the past three years. Indeed silver held in ETFs has grow the past three years.

Silver ETF holdings have increased unabated since 2006.

The chart above doesn’t include silver held in closed-end fund the Central Fund of Canada (CEF), digital gold services like Gold Money and Bullion Vault, or silver held in the Perth Mint certificate or Canadian Mint storage programs. Those holdings are included in this chart:

Silver Held in Custody By ETFs and Other Silver Storage Providers

Silver held in custody in ETFs and other programs is approaching one billion ounces of silver.

Silver held in custody by ETFs, closed end funds, digital silver companies like Gold Money and Bullion Vault, in silver certificate programs like the Perth Mint’s and in storage by the Canadian Mint continue to grow and have reached nearly one billion ounces.

Total Number of Ounces Held in Silver ETF and Total Dollar Value

The number of ounces of silver held in ETFs has grown every year. The value of those holdings has declined the past few years as the price of silver has declined.

The amount of ounces of silver held in ETFs has increased steadily over the years. The decrease in the price per ounce of silver has driven the dollar value of the silver ETFs’ holdings lower.

Silver Needed To Cover Short Positions On Comex

We have reported on the inordinate amounts of silver that would be requied to cover open silver short positions on Comex – approaching nearly half a year’s global silver mining production.

Here is the most recent chart:

The open silver short positions on the comex can only be covered by supply nearly a half a years worth of global silver mining production

Nearly 130 days of global silver mining production would be required to cover open short positions on the Comex

Silver stocks dwindling at the Shanghai Gold Exchange

It’s not surprising with industrial and investment demand for physical silver rising, that low stocks of silver are appearing. The Shanghai Futures Exchange is reporting seriously depleted silver stocks.

Shanghai Futures Exchange Silver Inventory 2013-2014

The silver stocks at the Shanghai futures exchange are dangerously low having fallen from 1200 tons to just under 100 tons in less than nine months.

Silver inventory at the Shanghai Futures Exchange has declined more than 90% from nearly 1,200 tons in February 2013 to around 100 tons in October 2014.

Chart Courtesy of Koos Janson of In Gold We Trust

Silver Supply and Demand Surplus/Deficit

On the two charts below created from data from the CPM Group and the Silver Institute you can see the demand for silver increasing, the price decreasing and a supply deficit forming.

Silver Supply and Demand Surplus/Deficit 1975-2012 – The CPM Group

Silving mining production has increased to provide the supply of silver over the past few years to meet increased demand.

Silver mining production has kept up with demand even as the price of silver has fallen, putting financial strain on silver producers.

Silver Supply and Demand Surplus/Deficit 1994-2013 – The Silver Institute

With increased demand the  silver supply demand  dynamic is starting to become unbalanced as a supply deficit is now showing

Silver demand has grown while supply and price have fallen.

Factors Impacting Silver’s Supply Deficit

The Low Price of Silver

Miners won’t mine or won’t sell what they mine

Because of the low price of silver, silver miners will either cease mining operations or not sell what they mine.

First Majestic Silver Corp. To Withhold One Million Ounces of Production From the Market

First Majestic Silver Corp, one of Mexico’s largest silver producers recently announced its decision not to sell nearly 1 million ounces of silver.

From the First Majestic Press Release:

“Produces 3.5 Million Silver Eqv. Ounces in Q3; Postpones the Sale of 934K Silver Ounces of Inventory
Press Release: – Tue, 14 Oct, 2014 7:00 AM EDT

Silver prices declined 19% in the third quarter representing the second largest quarterly decline since the financial crisis in 2008. As a result of this weakness, the Company decided to temporarily suspend silver sales in an attempt to maximize future profits. This suspension of sales will result in lower revenues and earnings for the third quarter, however, it is likely that these inventories of unsold ounces will instead be sold in the fourth quarter. As of September 30, 2014, approximately 934,000 ounces of silver were held in inventory.”

Mexican Mining Tax

If a declining silver price wasn’t enough to discourage miners from continuing operations and exploration, Mexico the world’s leading silver producer, instituted a new mining tax in 2014. While the tax is facing legal challenges and lobbying efforts, an uncertain and potentially adverse outcome is not condusive to further investment in Mexico.

China Hoards Silver Production

China is now the worlds largest gold producer and gold importer as well as the world’s second largest silver producer, behind Mexico. While China is a large producer of silver, it consumes domestically nearly all of the silver it produces, leaving little, if any, available for export.

Increase in Silver Coin Sales

In recent years silver coins and bars have gone from negligible demand to about 15% of the annual silver demand. Generally once silver coins are minted they are not melted back down. Thus, silver coins (and to a greater or lesser extent jewelry and silverware) once minted or crafted do not return to the supply of silver.

Silver Used In Electronics, Mirrors and CDS/DVDs is Consumed and Not Recovered

Because of silver’s low price, much of the silver in used electronics and solar panels gets tossed and is not recovered or recycled. Silver is essentially consumed in electronics, CD’s, DVDS, mirrors and solar panels.

What’s Next For Silver?

An Entire Year’s Global Silver Production is Worth Just $14 Billion

The silver market is so small that one extremely wealthy person could buy an entire years’ global mining production worth of silver. In 2013, the total silver mined world wide was 819 million ounces. At a price of $17.50 an ounce that is only approximately $14.3 billion!

In a such small market anything can happen quickly.

Will growing demand for physical silver and lower supply relative to that demand eventually manifest itself in higher prices?

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All charts, were produced for Smaulgld, unless otherwise noted, courtesy of Nick Laird of Sharelynx – The Gold Standard in Precious Metals Charts.

A special thanks to Nick is in order as he helped me collate the data for the various charts and applied his prodigious charting skills to produce them.

*Home Prices Rise Amidst Falling Demand

During 2013-2014 as silver demand increased, the price decreased further. We noted a reverse dynamic in the real estate market As home sales weakened, home prices rose; and it wasn’t due to a decrease in housing supply. See “Why the Housing Recovery is a Farce Illustrated by Two Charts”

Further Reading:

Gold Supply and Demand

Platinum Supply and Demand

Silver Demand in India

Indian Silver Import Charts (updated monthly)

Final U.S. Mint Silver and Gold Coin Sales in 2014

The Silver To Gold Sales Ratio (including links to updated monthly data)

12 Ways Silver is Different Than Gold

Silver and Real Estate

Homes Priced in Ouces of Silver

Is a Gold and Silver Supply/Demand Price Adjustment Coming?

Silver Hits Record Demand in 2013

U.S. Mint Reports Record American Silver Eagle Sales – 2103

The Gold Silver Ratio

Gold and Silver Manipulation – Suspected

Silver and Gold Manipulation – Actual

U.S. Mint Reports Record American Silver Eagle Sales in 2013

2014 Gold and Silver Predictions

Silver vs. The Dow

Silver vs. the Dollar

Price of Silver in 1979/80 vs 2013/14

China Exports Little of its Silver Production

China Boosts its Silver Production For Domestic Use

Silver ETF Holdings Increase

The U.S. Mint used 550 Ounces of Silver to Mint 1964 Coins

Silver Sales at the Royal Mint of the United Kingdom (page 11)

Royal Canadian Mint


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  • LibertarianUSA42

    I would like to see an article on silver options..

    • Smaulgld

      What about silver options would you like to see? Let me know and I’ll pull something together

      • LibertarianUSA42

        selling covered calls or ways to take advantage of the various market phases that silver goes through (repressed and repressed lol?).
        Basically I want to know since silver is volatile, what kind of options should we consider and which ones should we stay away from.
        Appreciate the reply on the blog, it has come a long way!
        (btw Im a dailypauler)

        • Smaulgld

          I’m not really much an an expert in options. Would be hard to predict the price of silver given supply and demand isn’t a good indicator!

  • Jeff

    They will never cover their shorts. Ever here of Lehman, Morgan Stanley, buildings blowing up records, 911 ?

    • Smaulgld

      There is no way they could get their hands on enough silver to cover.

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