5 CHARTS: The Real Story Behind Silver

As the world continues down the road of self-destruction via its highly leveraged paper financial markets, there’s a much more fascinating story worth looking at.  Hidden from the majority of the public and misunderstood by many of the so-called professional metal analysts, is the Real Story Behind Silver.

One of the reasons why we are all in such a big mess today, is due to the failure of the analyst community to provide the public with honest, meaningful and proper data and information.  As I have mentioned several times before, there’s only a few good analysts out there…. and a whole bunch of losers.  Unfortunately, the investing public has no idea that it is being misled due to this increasingly worthless shortsighted analysis.

Thomson Reuters GFMS put out a new Silver Update last month that was already covered by BrotherJohnF’s website last week (which many have already seen).  However, I took some time to closely examine the presentation and found some interesting charts worth explaining.

The first chart below has to do with the change in Silver Bullion Coin Sales.  According to GFMS, they show approximately 43 million oz in silver coins sold in North America in the first 9 months of the year.

GFMS SILVER Coin Chart

They don’t give you the exact figures, so we have to just eyeball the red bars and estimate what the amount would be by the scale on the left.  I came up with the following:

2013 Q1 = 14 million oz

2013 Q2 = 15 million oz

2013 Q3 = 14 million oz

Total = 43 million oz

So, GFMS figures that 43 million oz of North American Silver Bullion Coins have been sold in the Q1-Q3 period.  Now, according to my figures obtained from the U.S. & Royal Canadian Mints, total sales for the Silver Eagle & Maples were 55.7 million oz during this time period.  I don’t know why there is a discrepancy here, but it turns out to nearly 13 million less than the figures put out by the two Official North American Mints.

Furthermore, this does not include the “Other Commemorative” silver coins that these two mints also produce and sell.  This can be seen more accurately in the next chart:

GFMS World Fabrication Demand COINS

Here GFMS is forecasting an approximate 17.5 million oz increase in fabrication of silver coins in 2013 over 2012.  If we estimate that there will be 43 million oz of Silver Eagles and 25 million oz of Silver Maples sold in the entire year, the total would be 67 million oz in 2013.

Now, if we compare this to the total Silver Maples & Eagles sold in 2012…. it was 52 million.  So, the estimated change in sales from just these two North American coins will be about 15 million oz.  In addition, this does not include the gain from the other Official Mints as well as misc. silver coins that are produced and sold by the U.S. & Royal Canadian Mint.

As stated in the chart above, the North American mints produced and sold nearly 6 million oz of these misc silver bullion coins in 2012.  I believe the change in Silver Bullion coins in 2013 over 2012 will be more like 25-30 million oz.

I tried to contact Andrew Leyland, the Thomson Reuters GFMS analyst who wrote the report, but I was told that they do not give out contact information of their analysts — seems like everything is a big secret today.  Regardless, one of their associates asked if they could assist me, so I sent a reply that hopefully will be forwarded to Mr. Leyland.  If I get a response about these discrepancies, I will update it in this article.

UPDATE:

Mr. Leyland was kind enough to respond to my email.  This is what he stated about the discrepancies in the figures:

The survey is designed to show where coins are sold, rather than produced. A proportion of RCM and US mint coins leave North America (primarily for Europe).  There was also a discrepancy between the data supplied to us and the Q3 figure released by RCM.  We’ve been in touch with them and this will add around 1.1Moz to our Q3 number.

Incidentally, the chart probably under-estimates the size of the market outside of North America and Europe, partially due to the private mints that are not currently surveyed but also because many of the national mints will sell to distributors in North America and Europe who then sell worldwide.

Again, it was nice enough for Mr. Leyland to respond, but I don’t know how they can tell how many of these coins are being purchased by individuals in different countries.  So the discrepancy is based on where the coins are “PURCHASED” and not where they are “MINTED”.

If you look at the first chart the total number of coins for 2011 were 88 million (again eyeballing the figures), but according to the 2013 World Silver Survey (also done by GFMS) the total coins sold were 118 million oz in 2011.  While that figure includes what they call “Medals”, I would imagine it is only a fraction of the overall amount.

So, as Mr. Leyland stated in his last remark….”Incidentally, the chart probably under-estimates the size of the market outside of North America and Europe”, just goes to show that overall silver bullion coin sales are probably much higher than are estimated by GFMS.

This next chart says it all.  If Jeff Christian can’t see the Fed & Central Bank precious metal manipulation at work, the figures below certainly smacks the truth upon the individual — just like a 2 x 4 across the forehead:

GFMS Base Metal & Gold-Silver Price 2013

Since the beginning of the year, silver has lost 29% of its value while gold is down 22%.  Of course the base metals are behaving much better as copper is only down 12%, lead down 10% and zinc a modest 9%.  The data for this chart was calculated using prices before Nov 12th.

If we do a quick update including the Central Bank’s phat finger during Monday’s precious metals’ raid, Gold is now down 27% and silver, a whopping 38%.  Interestingly, copper is now only down 13% which makes the year to date difference between copper and silver nearly 3 times the rate.

Of course there’s no manipulation taking place  …..”nothing to see here so let’s just move on”, as Jeff Christian would say.

This next chart has to be one of my favorites.  I still receive emails from readers and investors who believe that it cost $9 to produce an ounce of silver.  For some strange reason, the industry continues to promote the insane methodology of “CASH COSTS.”

GFMS Cash Cost Chart

Mr. Leyland is trying to show that the large gap between the 1H 2013 Top Primary Silver cash cost and the price of silver is still a healthy $17 an ounce, even though it fell from a record $27 in 2011.  If we take this data at face value, the silver miners should be making a huge $17 cash cost profit…. or are they?

I would like to remind the reader that “Cash Costs” are not a GAAP – Generally Accepted Accounting Principle.  Basically, cash costs are figured by subtracting the company’s by-product metal from its production costs.  So, the higher percentage of by-product revenue a company has, the lower the cash cost.  So what.

For example, Hecla Mining recorded a $7.40 cash cost per ounce in Q3 2013 from their Lucky Friday and Greens Creek mines while they suffered an $8.4 million net income loss during the period.  I have to say, if I was running Hecla I wouldn’t be bragging about my low silver cash cost while the company is still losing money for its shareholders.

Again, cash costs do not determine the profitability of a mining company.

Hopefully at some point in time, the industry can step away from focusing on this totally meaningless accounting metric and throw it away in the trash bin where it belongs.

The last chart puts into perspective the totally out-of-whack market of silver investment.  Here we can see that total global silver investment is forecasted to fall to a little more than $6 billion in 2013 down from $8 billion in 2012:

GFMS Global Silver Investment 2013

The reason why the Silver Market is so small, is because the Fed & Central Banks want it that way.  $6 billion dollars invested in the silver market in 2013 is $6 billion too much for the monetary authorities.

This is apparent if we go back in time and read what President Lyndon Johnson said about silver when he signed the “Coinage Act of 1965” — the act that removed silver from U.S. coins:

Now, all of you know these changes are necessary for a very simple reason–silver is a scarce material. Our uses of silver are growing as our population and our economy grows. The hard fact is that silver consumption is now more than double new silver production each year. So, in the face of this worldwide shortage of silver, and our rapidly growing need for coins, the only really prudent course was to reduce our dependence upon silver for making our coins.

If anybody has any idea of hoarding our silver coins, let me say this. Treasury has a lot of silver on hand, and it can be, and it will be used to keep the price of silver in line with its value in our present silver coin. There will be no profit in holding them out of circulation for the value of their silver content.

Basically, Johnson was saying that silver’s role as a monetary metal was over because it was becoming scarce and it was needed more as an industrial metal.  You will notice that Johnson warned the “Silver Hoarders” that the U.S. Treasury had the ability to keep the price of silver in line with the value of the silver coin at the time.

Of course that doesn’t imply “manipulation”… does it?  Naw…just a standard policy of the U.S. Government.

In addition, Johnson made the following comments:

Some have asked whether our silver coins will disappear. The answer is very definitely-no.

Our present silver coins won’t disappear and they won’t even become rarities. We estimate that there are now 12 billion–I repeat, more than 12 billion silver dimes and quarters and half dollars that are now outstanding. We will make another billion before we halt production. And they will be used side-by-side with our new coins.

Since the life of a silver coin is about 25 years, we expect our traditional silver coins to be with us in large numbers for a long, long time.

FULL ARTICLE HERE

Johnson remarked that the real silver coins would not “disappear”, but indeed they did.  Within just a few years, it was difficult to find hardly any silver coins in circulation.  As we all know the famous Gresham’s Law …. Bad Money Drives Out Good.

As I mentioned in the chart above, the $6 billion of global silver investment is peanuts if we compare it to the $85 billion a month of Fed QE monetization as well as the $90+ trillion in Global Conventional Assets under management.

The Real Story Behind Silver will spread as the world realizes the majority of its paper assets held will become increasingly worthless in the future.  Today, the markets are running on fumes coming from the ink off of the Central Banks printing press.

While this all seems quite normal to the majority of people today…. I guarantee it won’t be the day the U.S. Dollar and Treasury Market finally dry up and blow away.

ADDITIONAL NOTE: I will be releasing my Q3 2013 Top Primary Silver miners adjusted break-even in the following week here at the SRSrocco Report.  So please check back.

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I hope that you find SRSroccoReport.com useful. Please, consider contributing to help the site remain public. All donations are processed 100% securely by PayPal. Thank you, Steve

29 Comments on "5 CHARTS: The Real Story Behind Silver"

  1. I can’t help but feel disinterested in gold/silver. The last 2-3years have really been bad.

    Sigh.

    Could we gold/silver bulls be wrong maybe?

    • CBob,

      While it seems that way today, was Peter Schiff wrong about the Housing and Financial Markets back in 2005-2007 when he was warning about their coming collapse on CNBC, FOX Business and Bloomberg?

      If this was 1980 all over again, then YES I would agree “Maybe we gold-silver bugs got it wrong by holding onto our metal.” However, this is 2013 and the world no longer has 3+ decades to increase its global oil production. We are at PEAK OIL right now.

      So, the majority of paper assets (including fiat money) get their value from a growing global energy supply. Those days are now over.

      Which means those holding onto the typical paper assets are going to get the ENEMA OF THEIR LIFE in the no so distant future. I apologize for the blunt language… but sometimes we have to provide a graphic representation that just might wake-up some of the Living Dead.

      steve

      • I can’t quickly find the link to statements made by Greenspan in which he said [paraphrase] “with all the sophisticated models we had we didn’t see the 2008 financial meltdown coming”. After reading that I did a Google search for people that did see that coming, and there were a lot, but few were listening. One was Peter Schiff.

        “If anybody has any idea of hoarding our silver coins, let me say this. Treasury has a lot of silver on hand, and it can be, and it will be used to keep the price of silver in line with its value in our present silver coin. There will be no profit in holding them out of circulation for the value of their silver content”.

        I hoarded a bunch of silver quarters and dimes starting in 1965 at age 10 from my newspaper route. Around 1979 or 1980 I didn’t know why the newspapers were full of people offering to buy those hoarded coins for so much money, but I was newly married and sold about three rolls of quarters [$30 face value…what it cost me] for enough money to completely rebuild a bad engine on my car. I suspect holders of 90% silver coins and .999 will see similar or much greater gains in purchasing power in the future.

        I do not have the credentials or knowledge of many who post on this site, or write articles on finance and PM’s. But I think the run-up in 2011 will not be allowed to happen again…until they can’t stop it. Watch gold and silver prices in dollars. When the dam breaks it will be a bellwether or “canary in the coal mine” of major socioeconomic and societal upheaval about to hit.

        Whomever you listen to for the truth it probably shouldn’t be government.

      • I think this latest exemplifies what the PM Community is enduring, from ALL quarters, and yet stands in the face of what I think is very fraudulent.

        http://denaliguidesummit.blogspot.ca/2013/12/unnecessary-risks-or-my-get-out-of-jail.html

        Everyone is concerned that Guru’s continue to spew SENSATIONAL NEWS in order to puff themselves up with in fact they know nothing that you and I cannot find on Google.

        SRS’s work stands in contrast to that, with what I think is solid, and maybe sometimes LESS sensational but damned good work, with real meaning.

        I am a TA Guy, All TA, all the Time, but i track rather than predict, saves me from a lot of egg on my face. To that end I refer you to this chart I put up on a MSG board where there are just a few posters and me, but we get a lot of traffic…..
        http://www.investorvillage.com/smbd.asp?mb=12386&pt=m&category=A

        Position-wise, its a bottom area, but we know NOT what the Opposition may do, so rather than PREDICT, I look for validation, confirmation or denial of my measures. Its helpful, its not a GPS, but we are getting better.

        Great Site Steve, and keep up the good work.

        DG

    • Cbob,

      I feel your pain. I’ve bought silver starting in the $30’s and it hurts to know at the current time it has gone down in value [but not rarity, or cost of mining and production, or energy costs associated with production and ransportation]. And there is irrefutable evidence of price manipulation…every day.

      The comfort should come from the fact these spot prices ARE mothballing mines and exploration in the U.S. and Canada. Yes Mexico, Peru, etc. can mine cheaper. But lower prices to miners HAS to restrict supply at some point. While large quantities are available today to retail buyers with short delays, which signifies the investor sentiment is down, there is the industrial need. This exceeds investor demand. It has to play out in shortage some day. That day may come by gold prices dragging it along with them, as is usually the case [unless and until there is industrial shortage].

  2. Paper price is manipulated, miners are told to produce certain figures for sustainable loans to keep things going. It’s a mistake to assume miners are being left alone while tbtf is running around with the last physical ounce to preserve the status quo.

    OR: the world is still in paper wet dreams (with other peoples money), most money is ‘managed’; that is a rather strong flow.

    The paper dream is still alive for the masses. That counts. Until the dream pops and everyone starts looking for the truth.

  3. Don’t feel so bad guys. I was buying in the 30’s AND 40’s. Bad timing at the time but DCA for me is still 22-23 per oz. And I’d do it again. Just for myself, The fundamentals are more positive than ever for silver. And far worse for the Buck-a-roo.

  4. I bought at 35 to 40 so I am really buying now! Patience is a virtue.

  5. I started buying at $47 and kept buying all the way down to $18. When i really started to check the historical prices of silver, i found it was overpriced. I was naive to the fact that the correct price today would be around $18/oz. Silver is on the outer part of the planet’s mantel, while gold is found a lot deeper. Hence the big discrepancy in price. I figure it will be back up to $47 in twenty years when it starts to get scarce. This is all assuming that the dollar doesn’t collapse first. Which today looks like a lock, in the next 3-5 years. Then silver will probably sell for 10-20 times today’s price if you can get it.

    • Dave,

      I appreciate your reply, but I would like to set a few things straight… if you don’t mind.

      1) the value of gold and silver are based on their store of ECONOMIC ENERGY…. a term coined by Mike Maloney.

      2) Peak Oil is here whether or not mere mortals want to believe it. Shale oil and gas are basically nothing more than a ponzi scheme. So, once the shale oil boom busts here in the states, we have no fricken PLAN B. Zilch… nada.

      3) As global oil production declines on top of the falling Available Net Oil Exports, paper assets will become increasingly worthless as they need a growing energy supply to survive.

      4) When fundamentals finally come back into the markets as they have been absent for the past decade plus, investors will be stampeding into PHYSICAL ASSETS such as gold and silver. This has nothing to do with how much silver is in the ground, but rather due to the fear that the value of paper assets will continue to implode.

      Lastly…. the world is spending an arm, leg and asshole to keep global oil production from falling. I imagine in a few years, it will cost the other arm and leg even though overall production starts to decline.

      God has been patient with his flock… but at some point in time he will have to bring out the BIG GUNS and wake up his silly people.

      steve

      • lastmanstanding | December 4, 2013 at 6:29 am | Reply

        …my father rode a camel, I drove a car, my son flies in a G5…his son will ride a camel.

        God has been patient with his flock. We just can’t get it into our heads that the same fucking lessons are given over and over and over again until the pattern is changed. A lot of people still don’t freaking get that!

        Energy lessons on the earth are no damn different than the lessons we get in life.

        It always comes down to power…and I am NOT talking about energy.

        Lets face it folks, we can send a man to the moon, float satellites in space, build nuclear weapons and energy, build a world wide fucking web…but we can’t devise a roof system to collect the suns rays to heat our homes for one?

        I think we will see the BIG GUN soon. The bad men must be stopped, they do not give a damn about the earth.

        • “World Wide Fucking Web” .. that’s not copyright is it? Can I have that to use?

          • lastmanstanding | December 4, 2013 at 5:37 pm |

            Go ahead Phil…I like it myself…

            I’d just spend a bunch of money to get the copyright and some mfr at jpm or gs would bone me out of it and screw the rest of you to use it.

            Their day is coming. There will be no where for them to hide.

    • At the current price of about $19 ounce, the entire world silver mining is about $ 14 billion a year. I look at how many trillions of dollars worldwide that have been printed out of thin air just in the past five years. If silver stayed at the current price, $1 trillion dollars would be enough money to buy the next 70 years world mine production of silver. Add increasing energy costs and lower ore grades going forward and you can see the current price is near a bottom.

    • lastmanstanding | December 4, 2013 at 7:05 am | Reply

      So why did you start buying at $47 Dave?

      I’ll tell you why…because you thought that the dollar was done…like a lot of other people.

      My dinky little coin shop, in dinky town USA went nuts buying silver at the top. The day before it began to crash the shop did well over $250K…just for that day. Lots of people thought it was over.

      Frankly, the next time it runs, I don’t think that there will be many with any funds left to jump on board…The bastards want you broke, begging for mercy, or preferably dead.

      Don’t give them the satisfaction. Believe in earthly value.

  6. I started buying physical silver around $32/oz and all the way to $22/oz.
    Gold and silver now represent about 25% of the portfolio – a level of insurance I’m comfortable with. I do believe we will all be put to the test in the near future as the manipulators get more desperate to prop up the dollar. I think Gold and Silver may get push 10-25% lower before rocketing back up to the moon. For now, I’m holding cash waiting for that big dip to trade in my fiat papers for more of real money.

  7. Bringing out the Big Guns is what I fear will be the eventual reality of this mess.It wont take much to start a war if USA is feeling impoverished enough,and the sensible folks out there are already prepped for whatever hits,as best they can.
    AG/Au may turn out to be totally irrelevant for years after the shock wave hits.Survival may be paramount,trading very thin on the ground.Of course,if you survive,good times may allow you to profit from your metals purchases.Hope so.

  8. What’s to stop the banksters from naked shorting the miners to oblivion; driving them out of the mining business; their property and mineral claim titles transferred quietly to – guess who? Banksters!

  9. http://www.investorvillage.com/smbd.asp?mb=12386&pt=m&category=A – a chart not to trade on, but to understand cycles can flip, go flat, accelerate or slow down. The tide comes and the tide goes out. We get to watch for the signs. I don’t predict, I track, being more a bookie than a loan shark.

    Then there are the shills: who try to influence us: http://denaliguidesummit.blogspot.ca/2013/12/unnecessary-risks-or-my-get-out-of-jail.html

    Steve does a hero’s job of analysis and NOT sensational yellow journalism but real work. I salute you Steve.

    Stay alert and don’t let them wear you down……

    DG

  10. 100 years later , another America Fatherland’s recital of celebrities, but also into Tiffany , his missus wanted to secure pieces of jewelry, we asked the then boss Walter Hoving, gladden hand over America President convincing ? Walter Hoving replied: ” I’m conscience-stricken, did Lincoln came, did not revelry any discount .” Ai Eisenhower convincing paid the full worth . Tiffany attention is on exhilarated eminence, the running after of perfection. 1886 Tiffany ‘s original legendary platinum six nail diamond toll, so that the magic discovered the beauty and unorthodoxy of jewelry minimalist charm. 1870 Paris World’s Tow-haired , Tiffany pass on be awarded for the triumph beat the everyone ‘s concentration to proceed , followed it before the younger generation successor Louis Comfort Tiffany ( Louis Reassure Tiffany , Charles Tiffany ‘s son ) leader actively participate in the people event, and won a many of medals and domain lionized .

  11. The viability of gold and silver going forward as a store of value is becoming more precarious because the level of fear related to uncertainty in the energy markets are subsiding. The EIA says natural gas production in the U.S. will increase 44% between 2011 and 2040. This is due mainly to several notable formations – the Barnett in central Texas, the Eagle Ford in southern Texas, the Bakken in North Dakota and the Marcellus in Pennsylvania and several neighboring states.
    But the largest discovery is in Australia in the Arckaringa Basin- nearly 10 times larger than the Bakken formation, 17 times larger than the Marcellus discovery and 80 times larger than the Eagle Ford deposit down in Texas – meaning that we are looking at over 230 billion barrels of recoverable oil. The growth economy is a derivative readily available energy and we are finding more of it every year. The U.S. and it’s ally, Australia, are seem to be well positioned for generations of steady energy supply.

    • JTM,

      While its nice to check the EIA for current oil & gas production statistics, I would not put too much money on their forecasts… as their track record is lousy.

      I am working on a Report for another site just on this very subject. Do not believe the long term forecasts put out by the EIA on U.S. oil & gas production.

      Four of the shale gas fields are already in decline. According to some of the better energy analysts, Shale Oil and Gas in the U.S. will likely peak within the next 3-5 years.

      Anyhow, I don’t have time to get in the specifics, but the GREAT SHALE GAS PONZI SCHEME WILL IMPLODE here in the next few years.

      steve

  12. Re: Buying & holding physical silver.

    For this discussion let’s assume many are like me. Fiat income minus expenses doesn’t leave much. I’d rather put it into physical silver with regular small purchases than anything else I could buy as a form of investment or savings with the same amount of money. There is no counter party risk. I think it wise to get FEMA’s recommendations for each family to store food, water. flashlights, some cash, first aid, etc. Then add to the FEMA recommendations to the degree one feels it is important to do so, including the things FEMA won’t recommend due to federal government agendas and what is politically correct, e.g alternative/historical money like silver, and a firearm or several.

  13. Don Harrold just posted this video that analyzes silver prices versus inflation in the US during the last 100 years.

    http://www.youtube.com/watch?v=snoxyymdKow&feature=player_embedded

    Frankly, I can see no flaw in his logic which concludes that silver is a poor inflation hedge. That said, one might quibble with the official annual inflation numbers used as being too low. But this just makes Harrold’s argument even stronger. So my question to you Steve is this:

    Do you think that your EROI silver thesis vis-à-vis declining silver ore grades and increasing energy costs represent a paradigm shift in silver price going forward? In other words, while Harrold’s numbers are what they are, and clearly show silver to be as it were fairly priced at $19 and change using a century of US inflation estimates, is silver about to be repriced much higher and dovorce itself from mere inflation because of it’s rapidly declining EROI (i.e. reserve depletion times increased oil/gas prices)?

    • Mamboni,

      In an economic vacuum and disregarding the energy factor, Harrold might actually be correct. I watched the entire video and just like you, I can’t find any flaw in his logic. However, that is based upon an economic system that continues the same way it has for the past 100 years.

      I don’t know if Don understands the “Energy Factor.” Now, I am not talking about the cost of energy or the falling EROI in determining the future value of silver. What I believe is that the decline of global oil production on top of a falling Net Oil Exports (double whammy), will destroy the majority of paper assets.

      The rise in the value (I didn’t say price) of silver in the future will be due to investors liquidating increasingly worthless paper assets and investing into stores of ECONOMIC ENERGY. The $90+ trillion of global conventional assets are not assets, but rather ENERGY IOUS. Thus, energy has to be burned in the future for these assets to be paid back or settled.

      Don does not understand the dire future energy supply situation. As I have mentioned in prior articles, if this was 1980 all over again, and we had 35+ years of a growing energy supply, I couldn’t recommend holding onto gold and silver either.

      However, this is 2013, and the world is now in peak oil production. The way down the slope of depletion will be a bitch… especially for those who have invested in ENERGY IOUs.

      One last thing, one of the reasons why inflation is so low is due to the huge interest rate swap derivative market which is propping up our whole U.S. Treasury market. You have to remember, Don is basing his inflation on a fiat dollar. What happens when the Dollar loses value? How do you determine inflation when the gauge, the dollar is broken?

      A fiat monetary system can survive as long as there is a growing energy supply. Once it peaks (and it has) it rains death on the system. Hence, the reason why the Fed & Central Banks are flooding the market with liquidity.

      This is where I differ from Don. Otherwise, you can’t argue with his logic on standard inflation — based on a growing energy supply.

      steve

      • Thanks Steve! Excellent response and summary. I think we can agree that this time it is really different (vis-à-vis energy supply)!

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