OFFICIAL RELEASE: World Silver Deficits –12 Years Running

According to the recently released Silver Institute 2015 Interim Report, the world experienced annual silver net deficits for 12 years running.  This is surprising as the Silver Institute actually reported a small net surplus of silver in 2014.  However, the small silver surplus turned into a deficit when 2014 mine supply and total demand figures were revised.

If we look at the chart below (using last year’s data), annual silver deficits were reported until 2013 and then turned into a surplus in 2014:

Global Annual Silver Market Net Balance

This was Chart #48 from THE SILVER CHART REPORT, released earlier this year.  Going by this data, the world suffered a cumulative net deficit of 930 million oz (Moz) for the past decade (2005-2014).  The annual net balance figure is calculated using data from Thomson Reuters GFMS provided for the Silver Institute.

The annual net balance figure is comprised by first subtracting total physical demand from total supply.  This is their “Physical Surplus or Deficit figure.”  They then take this physical surplus or deficit figure and add or subtract net changes in Silver ETFs and Exchange Inventories.   The end result is a “Net Balance.”  Basically, the annual net silver balance also takes into account the build or decline of Silver ETFs and Exchange inventories.

Even though Thomson Reuters GFMS reported a small silver surplus in 2014, I knew it was going to be revised lower to a deficit.  Why?  Because my analysis showed that they overestimated mine supply and underestimated physical investment demand.

For example, Thomson Reuters GFMS reported 2014 Mexican silver production of 193 million oz (Moz) at the Silver Institute, whereas my figures (taken directly from Mexico INEGI) shown in Chart #8 in THE SILVER CHART REPORT, list actual production at 184.2 Moz.  Mexico INEGI’s just revised their 2014 silver production figure to 185.3 Moz.

World Suffers Consecutive Net Deficits For 12 Years Running

If we take the data from the Silver Institute’s 2015 Interim Report and 2014 World Silver Survey, the world experienced consecutive silver deficits for the past 12 years:

Global-Annual-Silver-Net-Balance-2004-2015

NOTE:  The 2015 figure should read 2015 Est. (estimated).  Actually, I believe the 2015 net deficit of 21.3 Moz will be even higher when they revise the data next year.  I will get into more detail on this in following articles, but I believe estimated 2015 Silver Bar & Coin demand was under reported by a large percentage.

That being said, the 2014 small net surplus of 2.6 Moz turned into a deficit of 21.3 Moz due to global silver mine supply being revised lower by 12 Moz to 865 Moz from 877 Moz reported last year, while total Silver Bar & Coin demand was revised higher to 203.5 Moz versus 196 Moz stated last year.  These two revisions accounted for the majority of the net -23.9 Moz change.

Adding up all the annual deficits from the period 2004-2015, the world suffered a cumulative shortfall of more than a billion ounces of silver… 1,021 Moz to be exact.  That’s a lot of silver.  So, where did it all come from and does it really matter?

When Do The Silver Fundamentals Matter?

This is the question an increasing number of precious metal investors are asking themselves.  I know this first hand as this is the question I get emailed the most from my readers.  Unfortunately, the fundamentals don’t provide the EXACT TIME when the fundamentals matter, but rather present data about the ongoing TREND that offers us a some important CLUES.

Here is an excerpt from the Silver Institute 2015 Interim Report on the subject of physical deficits:

The silver market is expected to be in an annual physical deficit of 42.7 Moz in 2015, marking the third consecutive year the market has realized an annual physical shortfall. While such deficits do not necessarily influence prices in the near term, multiple years of annual deficits can begin to apply upward pressure to prices in subsequent periods. This year, however, net outflows from ETF holdings and derivatives exchange inventories on a year-to-date basis have lessened the impact of the physical deficit, bringing the net balance to ‑21.3 Moz.

Remember, the estimated physical silver deficit of 42.7 Moz in 2015 does not factor in the net change of Silver ETFs and Exchange Inventories… which was a net decline of 21.4 Moz (as of Sept 2015).

Regardless, the important item to focus on in the quote above is the statement, “multiple years of annual deficits can begin to apply upward pressure to prices in subsequent periods.”  What is interesting here (not discussed in the Interim Report) is that net silver deficits have been now going on for 12 consecutive years when we also include builds in Silver ETFs and Exchange Inventories.

We must remember, the large build in Global Silver ETF inventories (2006-2010) had to come from physical silver supplied by the market.  According to the Silver Institute, the total cumulative build in Global Silver ETFs was 569 Moz for the five-year period….. 2006-2010.

So, where did all this silver come from to supply a 1+ billion oz shortfall over the past 12 years?  That is the trillion dollar question.  I believe this billion oz shortfall was supplemented from a source known as “Unreported Above-ground Stocks.”  While this figure is nothing more than a good guess by various official sources, it has fallen precipitously since the 1990’s.

The CPM Group stated that “Implied Unreported Silver Stocks” reached a peak of  2.2 billion oz (approximate figure) in 1990 and fell to less than 200 Moz in 2014.  This draw-down of unreported above-ground stocks supplemented both the annual physical supply deficits and builds in Global Silver ETFs over the past 35 years.

While it’s impossible to know how much remaining silver (from unreported above-ground stocks) can be used to supplement ongoing annual deficits going forward, there’s probably a lot less than we realize.  Furthermore, the segment of the silver investment market that was impacted the most during the rapid 60% fall in the silver price was Global Silver ETFs.

As I stated above, from 2006-2010, the net build of Global Silver ETFs were 569 Moz.  However, from 2011-2015, the net increase in Global Silver ETFs were a paltry 18.2 Moz.  What happened if the price of silver continued to rise 2012-2015?  Main Stream investors would have piled into the Silver ETFs pushing up their total global inventories.  Rising Global Silver ETF inventories on top of rising physical Silver Bar & Coin demand would have put a real strain on remaining “Unreported Above-Ground Stocks.”

Even though precious metal sentiment is now probably at all time lows, investors need to realize NOTHING HAS BEEN FIXED in the Global Financial Markets.  Yes, it’s true that the propping up of the markets by the Fed and Central Banks has gone on longer than we realized, the unraveling of the World’s Greatest Financial Ponzi Scheme is still on its way.

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15 Comments on "OFFICIAL RELEASE: World Silver Deficits –12 Years Running"

  1. These are hard to answer questions. How much historical above ground inventory. How much lost forever in production. How much supply for the next 20years. etc. If Cannington is running out of silver, what will be the state of future primary silver mines?

  2. Will you be attending/giving any talk at the Silver Summit conference in San Francisco on Monday-Tuesday? If you’re attending, I wanted to meet you and be introduced there.

    • Theravaida,

      I was invited a couple of years ago to speak at the Silver Summit, but could not due to a conflict in scheduling. Even though I would like to speak at the Silver Summit, I will not be attending this year. Of course, if I was, it would be great to meet you.

      steve

  3. Thanks Steve for the information in this posting.

  4. So way is the price what it is?

    • Tom,

      The current gold and silver price are valued via their relationship to the price of oil. When the price of oil increased 16 times from 1971-1980, the price of silver went up 16 times and gold went up 15 times. Both precious metals were a store of value and a hedge against energy inflation which thunders through the entire economy.

      Because the present price of oil is now at $40, it has impacted the paper price of gold and silver lower. However, the future value of gold and silver will no longer be based on the price of oil, but rather the collapse in value of most paper asset due to peak oil.

      Investors believe Financial Assets are stores of wealth. They are not. They are ENERGY IOU’S. Energy has to be burned in the future to be able to liquidate or pay back these supposed paper assets. Gold and silver are not energy IOUS, they are stores of ECONOMIC ENERGY.

      An individual who holds an ounce of gold or silver has real wealth. Individuals or companies must burn energy to create a good or service to trade for this gold or silver coin. This is what most investors fail to realize.

      The reason the current paper price of gold and silver are so low is due to the siphoning of the world’s funds (98%) into financial assets and not into physical assets such as gold and silver. Investors are waking up to this fact. Just a small percentage of that 98% moving into physical gold and silver would totally destroy the supply-demand market… resulting to the true energy market value.

      steve

  5. Awesome reporting Steve. Reminds me of articles from Charles Savoie on this website, the fiat pushers defending their interests over many decades. TBTF with their secret silver stockpiles to compensate shortages when the time comes, for 12 years, and counting. Who knows? When will the last 500.000 ounces leave Fort Knox. My 2 cents.

    • I’ve opined before that I consider accumulating silver not as investing or a hedge or insurance but just a form of savings. Accumulating fiat currency [any nation’s currency], either in one’s possession or as digits in an account, is not a long term store of value due to increasing costs of the things one has to buy. Even in a deflationary environment many things are going up in cost.

      The past is the past. Now, right now, with silver so low I see it as at least as good a store of value as units of currency in one’s possession. It is very liquid back into currency if one has to. And has great upside potential sometime in the future…but no one can say when. That when however may be rather sudden.

      • Agreed David. I don’t save in fiat, only physical gold & silver. We’ll see how this ride ends, my little generational wealth startup is looking good already.

  6. I look upon ANY statistical utterances by Thompson/Reuters, GFMS, Silver Institute CPM Group, with a jaundiced eye.
    All are conflicted and are in the TBTF camp.
    Thompson/Reuters is one of the central actors in the “official” propaganda department of the MSM.
    GFMS and the Silver Institute operate under the financial support umbrella of the LBMA
    CPM Group is nothing more than a club of parrots, spreading the “official” word.

    Their so-called “statistics” are a clever mish mash of half truths and falsehoods.

    The really clever trick Steve, is to ferret out the wheat from the chaff! Thanks for trying.

  7. That’s exactly what i’m saying for a long time already but as we don’t know how much unteported Silver is around, there’s no way to know for how long the game will continue. Guesses are often far away from reality.
    We will see but as long as the price trend is downwards we know that there is still shaddow supply around.

  8. Steve,

    Fascinating article. It caused me to wonder where is all the silver coming from.

    Silver is 17 times more prevalent in the ground than gold but because of its relative value and cost to extract it is mined at 10.5/1.

    So, if from the beginning of time through 2004 44.55 billion oz, (boz.)of silver have been mined (4,25 Billion gold oz.) and 45 % of all silver has been consumed. That left about 24.5 boz. somewhere. If for the last 12 years demand outstripped supply 1 boz. does that mean this could go on for another 23.5 years?

    From the end of WWII to sometime in the past, according to the USGS, the US sold 5 boz. and currently has none. So where the hell is all this silver coming from?

    Thanks,

    SteveW

    • I don’t know where you have these numbers from but it’s a valid point.
      With every year passing and the price decling further i’m affraid you could be right.

    • Steve W,

      This is the reason why I am working on the next report. The surplus of silver to supplement the market over the past 3-4 decades came from both U.S. Treasury Stock and official coinage from several countries… not just the United States.

      It has been this draining of official silver into the market that has allowed these deficits to continue. Government stocks are now pretty much depleted. The U.S. was the major source of Government silver sales during the 1950-1970’s, while Russia, India and China were the sources in the 1990’s and 2000’s.

      steve

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