Even though interest in precious metals has fallen over the past few years, investment demand is still the largest growth sector in the silver market. Yes, it may be hard to believe, but physical silver investment has grown the most since the 2008 financial crisis compared to the other sectors. And while industrial users consume the highest amount of silver in the overall market annually, its total demand has fallen over the past decade.
Furthermore, a new study shows that global PV solar demand will decline by 40% over the next five years. But, I will get to that later in the article. However, I wanted to focus on physical silver investment demand because the alternative media community seems to have this idea that SILVER IS DEAD… IT’S NOT. While it’s true that investment demand has declined significantly from the peak a few years back, it is still much higher than what it was before the 2008 financial crisis.
Interestingly, silver coin bar and coin demand seem to spike the most when prices are falling rather than when they are rising. This was true in 2015 when total global silver coin and bar demand hit a record high of 292 million oz (Moz) as the silver price fell to a low of $15.68 versus 161 Moz in 2012 when the average price was $31.15:
Now, according to the Silver Institute’s Interim Report, total coin and bar demand will fall to 125 Moz in 2018, down from 142 Moz during the prior year. So, even though physical silver investment demand is down more than half of what it was at its peak in 2015, it is significantly higher than what it was in 2007, before all hell broke loose in the financial system and economy.
Looking at the data from prior World Silver Surveys (found at the Silver Institute), coin and bar demand ranged from 50-60 Moz during 2000-2007. However, things got really interesting in the silver market when the priced jumped to $20 in 2008 on the back of a disintegrating banking and housing market. Silver coin and bar demand more than tripled in 2008 to 192 Moz.
But, in 2017 and 2018, the ongoing low prices saw global silver coin and bar demand fall to lower levels as investors focused on the more volatile broader markets, Bitcoin and the Cryptos. Nonetheless, I believe life will return back into the precious metals in 2019 as FEAR ENTERS into the market.
As I mentioned, physical silver investment demand is the largest growth sector in the entire market if we use the 2008 financial crisis as a guideline. Silver coin and bar demand it has increased 123% from 56 Moz in 2007 to 125 Moz forecasted this year (Thomson Reuters GFMS Team). Now, the only other sector that has shown an overall increase in the same period is silver jewelry demand which grew 8% versus an 11% decline in Industrial usage followed by a drop of 8% in the silverware sector:
Analysts who continue to brag about rising industrial silver demand don’t seem to pay attention to the figures. Industrial silver demand peaked in 2011 at 661 Moz and is forecasted to fall another 2% this year to 585 Moz down from 596 Moz in 2017. I have stated over and over again, that industrial silver demand is not the primary driver of price. Why? In 2012, when the silver price was higher at $31 industrial silver demand was less at 600 Moz compared to 634 Moz in 2009 when the price was only $20.
That being said, silver industrial demand is likely to continue contracting as oil production peaks and declines. Even if we disregard falling oil supply and its impact on the overall market, a new study titled The Role Of Silver In The Green Revolution (for the Silver Institute), states that silver demand in the PV Solar Industry is forecasted to decline by 40% by 2024:
Not only is PV Solar silver demand to fall considerably this year compared to the nearly 90 Moz in 2017, but the CRU Report also forecasts that it will continue to decline to approximately 50 Moz by 2024. I gather we can now dismiss all the supposed notions of massive increases of Solar PV silver consumption in China and throughout the world. Actually, I believe Solar PV installations will begin to decline considerably as the market realizes it’s too expensive and its very low EROI – Energy Returned On Investment will not provide the Green Energy future as planned. One more thing, the more PV Solar Plants that are added to the grid, the more balancing power that needs to be added to offset the huge drop-off at night when the sun isn’t shining. Very few people realize the huge problems associated with adding Solar to the Electric Grid.
In my ongoing research, I have found out that supply and demand forces are not good primary indicators of the silver price. Part of the reason that supply and demand fundamentals play less of a role with silver has to do with the 2.5+ billion oz of custodian silver metal stored in vaults across the world. Moreover, as I stated, the highest demand for physical silver coin and bar demand of 292 Moz in 2015 was due to 50% REDUCED PRICE SALE compared to 2012. So, there are very complicated factors driving the silver market.
My newest analysis of the Day Trading Markets has brought a new understanding of what GUIDES THE MARKET PRICE of stocks, commodities, metals, etc. However, the COST OF PRODUCTION is the overriding factor that provides a FLOOR in the price of most things. I am not saying this is 100%, but production costs are the leading indicators of price when all things are equal. And by that I mean, when the market is balanced, the cost of production is the normally the floor price upon which supply and demand forces react.
Let me give you an example. If we look at the financial statements of most companies, they are all making a small percentage of profits once we account for ALL COSTS. So, if a company like Caterpillar is manufacturing and selling Earth Moving Machines for the market and they are making about a 5% profit (give or take), then the total cost of that machine they sell becomes the 95% of the market price. It’s really that simple.
Now, of course, Caterpillar isn’t going to manufacture and sell ten times more machines in a given year than the market demands as that could depress prices. Furthermore, their financial constraints (small annual profits) KEEPS them from manufacturing too many machines because they just don’t have the extra money or available low-cost credit to do so. So, the market is kind of self-regulating when we consider supply and demand forces.
Once we understand this self-regulating market, the most significant factor that is impacting market prices… is the TOTAL COST OF PRODUCTION. Please know that I am talking about a “Typical balanced market,” not some poor slob out in the desert who would exchange his gold watch for a gallon of water. That is not a typical market.
According to my analysis, the main driver of the silver price, OVER A LONG PERIOD OF TIME, has been the oil price:
As we can see, the silver price has trended nicely along with the oil price since 1900. Silver spiked higher in the 1970s versus oil because there was much higher “consumer price inflation” while the 2000s experienced a great deal more “asset price inflation” (stocks, bonds, and real estate). Also, physical silver demand had more of an impact on silver price in the 1970s while the paper markets have been the leading driver for at least the past two decades.
Thus, when the oil price shot up from $19 in 2000 to $110 in 2011, this had a tremendous impact on the cost to produce silver. Here is a chart that I have posted before on my estimated Pan American Silver mining production cost (one of the largest primary silver producers in the world) versus the market price:
Here we can see that for the most part, Pan American’s total mining costs were slightly below or above the market price. Only during the highly speculative silver years of 2011 and 2012 did Pan American Silver enjoy much higher profits. In my most recent update, Pan American Silver’s AISC – All-In Sustaining Cost in Q3 2018 was $13.73, not much lower than the current market price of $14.15.
So, with all the global supply and demand forces over the past century, I find it quite amazing that the silver price has trended up and down with the oil price. Why? Because the oil price is the main driver of the economy and it sets the INFLATION RATE and PRODUCTION COSTS of most things. I don’t care if the market or individuals create the demand for silver and the miners produce the supply… they cannot determine the PRODUCTION COST… that is based on the thermodynamics of a highly complex system.
Yes, it is true that if no one on the planet wanted silver, then common sense would dictate that its value would be ZERO. However, if people desire goods and services, they are going to have to pay the price to cover the COST OF PRODUCTION. It is that simple.
I will be writing more articles and publishing new videos on what is and what will be the NEW DRIVER of the silver price in the future. I get a lot of questions from people who ask me that if I believe the oil price will fall, then how can I see much higher silver prices in the future. WELL, THERE LIES THE TRILLION DOLLAR QUESTION.
But, to put it quite simply, the massive $247 trillion in global debt has provided a temporary illusion of high STOCK, BOND, and REAL ESTATE asset prices. Basically, the debt has blown up these asset values. However, GOLD & SILVER are not being propped up by debt. When the debt implodes, most asset prices are going to deflate into the cesspool. And with falling U.S. and global oil production, it will make a bad situation worse. Growing global oil production has allowed the debt to increase, but this will head the other way when the oil supply turns south.
When investors watch as their assets continue to go from BAD, to WORSE to AWFUL, they will move into gold and silver to protect wealth. This will be the time when precious metals SUPPLY & DEMAND forces finally kick in a big way.
Lastly, the next market phase we will enter into is WEALTH PRESERVATION. So, when the investors become reacquainted with precious metals during this phase, we will no longer have to worry about whether or not SILVER IS DEAD.
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hey. like read your page. about that investment in silver. this forcast for 2018, 125 oz looks like JP morgan is almost half. if comex dont lie 🙂 depository silver stock chart show 55 oz jp buy this year. and from 2011 when they start buying, they (JP) become more and more aggressive
joni,
I am not one that believes JP Morgan is buying Silver Eagles or BARS & COINS. While Ted Butler and some others believe that conspiracy, I don’t belong to that group. JP Morgan would be silly to purchase Official Silver Coins at $2+ over spot when they can buy large bars at spot or a small percentage over spot.
steve
Thanks for replay. silver coins probably not, But arent 500 oz bars also include in? That it would make sense. china and russsia do. Just look at that picture from russia gold vault, silver is there. it is a strategic metal that it will be use in the fight for control of the money when usd come to the end. fiat money its just mathematics formula, and it got naturale limit, when interest rate eat too much of real economi. so US need war, but russia china just pick the fight. its a process but it look like we are near. before election in US they try with Hillary in turkey and they fail, russia save ergodan and EU of wave imigrants for benefit of that gas pipeline. so US put Trump in to start fight with china. end of QE means no more usd out of US in the rest of the world, circle turn around, usd back in US so the FED is
compulsory raise interest rate, try to offset collapse in the US, and rest of the world face with a sortage of the usd. i think this is why the oil is falling so fast this days. who will be first? hyperinflation in US or deflation in the rest of the world? que sera sera, wise man got ag 47
Ted Butler is an idiot. Everybody knows that. But the PM community praises him like he’s a Messiah.
Ted Butler is no idiot. He’s just looking for clues at the scene of the crime. I’m thankful for all those who endeavor to shine a light into the shadows.
What Ted fails to do, in my observation, he forgets to make all his font bold. That could give him more credibility; or not.
Thanks Steve. Silver is real head scratcher in all of this. It’s low price makes no sense at all.
I’m about to take 40K in savings out of a debt/real-estate investment fund and put it into precious metals to increase my position in PM’s from small to significant. But I’m biting my nails about it a bit.
Everywhere you look in the first world things are shaking up economically, financially, socially, politically, ecologically, culturally… We cannot continue in this state for long, whether it is the US, Italy, Greece, Brazil, Eastern Europe. And now France is starting to wake up with the yellow jacket movement.
The collapse of global trade will bring the global ponzy schemes down to its knees. If it doesn’t we will destroy the planet we live on.
No need to go “all in” with 40k right away IMHO. If you have 40k at hand I’d start with an initial purchase of gold and/or silver of X% and then add by buying once every month or quarter over a longer time-period. If there is a moon-shot, you’re on board, if there are pull-backs (and there will be) you can get more for your fiat. That will calm your nerves and allow you to calmly deal with the regular and for many ever-so frustrating smashes of the metals (just look what it turned Dolph into…). After a while you’ll embrace these as buying opportunities rather than feeling all beat-up. GLTY&A. a longtime-scarred, yet hardened fellow stacker.
“And while industrial users consume the highest amount of silver in the overall market annually, its total demand has fallen over the past decade.”
While this may be true globally, I have to think demand is increasing in some areas like China or India, where there is a push for silver-based solar panels.
Silver vs. Oil Price
Near term.
Steve, your long term chart (+100 years) does indeed show the long term trend in prices.
However if you look at the near term, October 2016 – October 2018, something interesting occurred in April this year.
The monthly spot price of silver fell below the average monthly crude oil spot price and has continued lower. So in the near term what is overvalued, compared to what is undervalued?
Considering that the mining of precious metals is energy intensive, this disconnect will not continue.
Over the course of this near term, two year period, the price of crude has steadily climbed. While the price of silver after chopping sideways for the first 18 months has fallen.
Thoughts?
Add to your observations OutLookingIn, comparing Steves chart showing that the price of silver went to $22.00 in 1977 and then dropped significantly, almost immediately- it actually shot up to $50.in 1979 as a result of the Hunt brothers maneuvers and then dropped with the help from Paul Volker and Alan Greenspan in their market abilities. This was a big event that occurred during the late ’70s and early ’80s and can’t be ignored.
Steve, this is an excellent analysis -as usual. Thank you very much for that.
By the way, let me humbly state that silver has > 300.000 (some say 400.000) industrial uses, and they find a new use every day. Modern life would be virtually impossible without silver. Meanwhile, the world’s population relentlessly grows and demographics change -the rising huge middle class in China is expected to have a particular appetite for silver-related industrial items. So diminishing solar demand might be an exception, and even that situation could change in the future with eventual depletion of oil and uranium.
I am not half as smart as many in your forum Steve BUT I have an ability to understand the simplicity of things when I am made aware of them.
The “COST OF PRODUCTION” is one of those simplistic moments. If you can’t make sense out of that relative to “Market values” you have your head jammed up your backside eh?
Good article Steve
Great article Steve. Two years ago I thought crypto currencies would reduce demand for silver and gold when the stock and bond markets fractured. Today it’s a different story. Faith in cryptos has been shattered and regulatory control is a huge risk factor in owning them. Pricing below $4k for Bitcoin is attractive but in my opinion only for a speculative investment. I never bought in.
I’ve long been a believer that a slow burn crisis is what’s coming our way. Central banks and The Fed can apply significant friction on sliding markets.
It’s easy to be lulled into complacency. Things move slowly until they don’t, and at that point PMs move from a nonperforming assett (essentially insurance) to an in-demand investment. I’ve been in PMs for many years. You’ll profit if you buy low and with low premiums ( like what we see right now) and there’s a good chance you’ll lose if you try to jump into momentum trades later. The spot price isn’t the only thing that climbs – premiums can easily double in a high demand environment. Retail sellers aren’t stupid. I’ve noticed that premiums will start increasing before we see movement in the spot price.
I believe we’re easily within 10% of the cost of production on silver and I’m fairly confident we won’t see a dip below $13/toz. I’m willing to risk a 10% loss if I buy now rather than waiting. The markets are really very unstable, especially the bond markets and whenever I’ve seen these kind of crazy swings in equities it’s almost always followed by a very sharp move down. It could be just a correction but I’m seeing enough of a perfect storm brewing that I want more insurance via silver and gold. I’m hoping prices hold until February 2019 so I can meet my purchase goals.
I always learn something from your research, Steve.
Steve, not sure if you’ve ever checked out the Silver Institutes cost of production for previous years as they go back many years. There were a few years (I think 2002 ish) where they calculated a negative cost of production.
This leads me to believe that the true cost of production of silver is being subsidized by byproduct mining and by product credits.
Even if you could literally pick up a bullion bar of silver off of the ground while stooping very to pick up a gold bar this would still incur a miniscule energy expenditure.
Hi Steve, based on your view on debt implosion resulting in precious metals prices rocketing. Does this cause oil supply to “go south” or is it all as a result of it? What will happen to the oil price then and do you see oil remaining coupled to the silver price? In other words will oil be back at $110 and silver at $35? Thanks for your very thought provoking articles.
This is why it’s so important to stay up to date on what silver and gold are doing! I keep this page here bookmarked (https://bullionexchanges.com/charts/gold-price) so that I never miss out on what those two precious metals are up to. The way the economy is going, you’ve got to invest in precious metals or you’re just taking a huge personal risk. Thanks for the write up here, Steve.
Don’t pay much heed to the utterly control silver market anymore.
Nevertheless an over 14% crash is different story.Even though
the revolting paper market apperes to be totally oblivious.
Mexican silver production for September.
http://www.beta.inegi.org.mx/contenidos/saladeprensa/notasinformativas/2018/ind_miner/ind_miner2018_11.pdf
Obviously the world markets are feeding on continually infused debt. The populous must ride along as the cream of the coffers are being skimmed by the very rich and powerful until…
Bury PM deep.
So many excellent, original observations. I particularly like Caterpillar example. And the one-hundred year Oil vs. Ag ‘price’ chart demonstrates a tight correlation. So the question is, will this correlation continue as the thermodynamic situation continues to degrade? The way I envisage this, it has to.
The EROI of oil continues it’s unstoppable slide as fiat money continues it’s own unstoppable loss in value, over time. And the de facto backing of oil for the FRN dollar adds a hopeless coupling.
How do we measure values? We compare one thing against another, or, more universally, we compare everything to money.
If one barrel of $60 oil makes X amount of fuel, then suddenly, it took two barrels to make the same X amount of fuel, how much would the latter two barrels be worth? They would be worth less, exactly half as much as the original $60 barrel. But the thermodynamic slide does not happen suddenly, it happens over time.
A 2020 $60 barrel of oil may be worth half as much as a 2019 $60 barrel of oil.
I think we have watched exactly this phenomenon over such a long period of time that we don’t see it, i.e. a barrel of oil costs more than it did one hundred years ago, yet measured in terms of EROI though, it’s worth less. My point? Oil, as feedstock, due to declining EROI should be worth less in the future. And it would likely cost more. Maybe an oil-barrel will cost a wheelbarrow of fiat?
It’s kind of like oil/fuel powers our economic engine and fiat money is the lubricant for that engine. And that lubricant is loosing viscosity at an increasing rate. Personally I think the engine seiszes before we run out of fuel.
I’ll never buy silver. Never. I will go to my grave never investing in silver. That’s one of the few promises I can make to you people.
I just want to let you guys know that people like me exist. Invest accordingly if you think there is alot of pend up demand for silver. Just face the consequences either way.
“I just want to let you guys know that people like me exist.”
We already know that other than an old silver dollar or other 90% coin, or some sterling silver jewelry or utensils, well over 50% of the population has no silver, and well over 95% has no interest in buying any…unless it starts going up as priced in currency. Then you would be buying too, if you watched it move up like the DOW over the last several years.
We all know the world is full of morons and ignorants
We do not need your promises. Just leave.