Rising Silver Investment Demand Puts Record Squeeze On North American Supply

Rising physical silver investment demand will put a record squeeze on North American supply this year.  Since 2001, the United States and Canada have experienced two opposite trends… surging official silver coins sales on the back of plummeting domestic mine supply.

For example, in 2001 U.S. and Canadian silver production totaled 96.6 million oz (Moz).  Of that total, the U.S. produced 55.9 Moz, while Canada supplied 40.7 Moz.  That year, Silver Eagle and Maple Leaf sales totaled 9.2 Moz.

U.S-&-Canadian-Silver-Production-vs-Eagles-Maple-Sales

Note:  the red and blue bars represent Canadian and U.S. silver mine supply, while the white line and boxes show the total sales of U.S. Mint Silver Eagles and the Royal Canadian Mint Silver Maples.

Even though U.S. and Canadian silver production declined significantly to 67.2 Moz by 2007, total Silver Eagle and Maple Leaf sales only increased slightly to 13.4 Moz that year.  Which means the U.S. and Canada still enjoyed a net 53.8 Moz domestic silver mine supply surplus after their official coin sales were deducted.

However, during the collapse of the U.S. Housing Market and Investment Banking System in 2008, Silver Eagle and Maple Leaf sales surged to 27.5 Moz while the combined silver production from the U.S. and Canada fell to 57.5 Moz.  This pushed the combined domestic mine supply surplus from these two countries down to only 30 Moz once consumption for official silver coins were removed.

This trend counter-trend continued (except for a brief reversal in 2012) until it hit a record net deficit of 19.8 Moz in 2014.  This supply deficit is a result of record sales of Silver Eagles and Maples of 73.2 Moz compared to 53.4 Moz combined silver production.

While it’s true the U.S. and Canada imports silver for industrial fabrication, jewelry, silverware and investment demand, this amount has increased significantly due to falling domestic mine supply.  Let’s compare the net change since 2001:

U.S-Canaidan-Silver-Production-Minus-Ealge-Maple-Sales

If we look at the chart above, we can see that the surplus of U.S. and Canadian silver mine supply minus consumption of their official silver coin sales was 87.4 Moz.  However, this is estimated to be a net deficit of 26.2 Moz in 2015 as total Silver Eagle and Maple Leaf sales reach a record 75 Moz versus combined mine supply of 48.8 Moz.

The significance here is that the United States and Canada could use 87.4 Moz of their domestic mine supply (minus official coin consumption) for industrial, jewelry and silver ware fabrication, whereas now they have to import silver just to cover the consumption for their official coin production.

That being said, there continues to be this rumor that the U.S. Mint must use domestic silver mine supply for the production of its Silver Eagles.  This used to be true when Congress authorized the U.S. Mint to use up the silver in its Strategic Stockpiles.  However, after these inventories were depleted, Congress authorized the U.S. Mint to purchase silver on the open market for the production of its Silver Eagles.

Furthermore, commonsense tells us that at the estimated 37 Moz of U.S. domestic mine supply could not meet the total demand of 45 Moz of Silver Eagles this year.

Regardless, the charts in this article show just how much the surge of Silver Eagle and Maple Leaf sales have totally overwhelmed domestic silver mine supply from these two countries.  While silver is still relatively cheap and abundant, there will come a time where silver producing countries such as Mexico and Peru will hold onto more of their mine supply for their own citizens.

Precious metal investors and especially the ignorant public have no clue just how little silver there is to go around when its true STORE OF WEALTH properties are realized.

Lastly, the first chart in this article was an updated chart found in my THE SILVER CHART REPORT.  I am currently working on THE SILVER MARKET REPORT that will focus on the silver market going all the way back until the 1950’s.

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9 Comments on "Rising Silver Investment Demand Puts Record Squeeze On North American Supply"

  1. Steve,

    In a recent reply to a reader who posted an opinion you stated:

    “You cannot go by the gold-silver price ratio as a cost metric and compare it to the 10 to 1 ratio that is being mined. The reason gold and silver have that 73/1 price ratio is due to their current COMMODITY PRICING MECHANISM.

    It costs about $1,050-$1,100 to produce an ounce of gold today and about $15-$16 to produce silver. If you divide $1,075 by $15.5… you get almost 70/1. That is the way the ALGO’s are valuing gold and silver currently.

    And the first line of this article:” Rising physical silver INVESTMENT demand will put a record squeeze on North American supply this year”. Assuming there are shortages coming [I do], how would physical metal demand affect the G to S ratio? I’m not asking where it will be in the future as that is pure speculation. Rather how do you see the trend on GSR as affected by ALL physical demand of both metals? Partly answering my question is the fact that current gold demand isn’t industrial [I’m not counting gold and silver jewelry], and over half of silver demand IS industrial.

    Thanks,

    • David,

      I believe investors will start to wake up to the fact (are already doing so in small numbers) that paper assets are death traps going forward. These are the typical STOCKS, BONDS, IRA’s CD’s etc and etc. Just a small percentage 1-3% moving into gold and silver will totally destroy the supply and demand metrics.

      Furthermore, I believe silver’s cheaper price per ounce and its affinity for the working class will cause its demand to skyrocket even more than gold. This will move that GSR down to very low levels. I have no idea how low, but low.

      This will have nothing to do with cost per ounce or etc, but rather due to the RARITY of physical assets that STORE WEALTH. Just look at the clobbering many stocks are seeing today. Gosh, they are losing 40-50% within the past month or two. If folks were smart and purchased GOLD or SILVER instead of owning some of these stocks, they might have lost 5-10% in the short-term, but would be much better off in the long term.

      steve

  2. How much sense does it make to only watch the domestic supply side? Neither the US nor Canada are the Nr. 1 silver suppliers in the world.

    In 2014 Canada was Nr. 9 and the US Nr. 11 on the chart of Silver producing countries.

    https://www.silverinstitute.org/site/supply-demand/silver-production/

    As you mentioned the US Mint is importing silver from other countries in order to supply their coin production. Over all there seems to be enough silver around to cover the demand at least for the time being. By theory we had a Silver supply deficit since 2005 of approx. 779 tones. That makes about 78 tones per year. Magically that missing Silver has allways been delivered. Nobody knows exactly where that Silver came from. Obviously there is a shaddow supply of Silver around and as we don’t know how large that supply is and who provides it, we don’t know for how long the same game is going to continue either.

    • “By theory we had a Silver supply deficit since 2005 of approx. 779 tones. That makes about 78 tones per year. Magically that missing Silver has allways been delivered. Nobody knows exactly where that Silver came from. Obviously there is a shaddow supply of Silver around and as we don’t know how large that supply is and who provides it, we don’t know for how long the same game is going to continue either”.

      I think you are raising a valid point. Supposedly central banks and national treasuries do not hold silver. Bullion banks like JPM do of course. Sprott, regardless of whether one likes him or not, knows a lot about the available statistics on mining and recycling supply versus physical demand. In a recent interview I heard him say he had no idea where the silver was coming from to meet demand.

    • Max Meister,

      Yes, I realize the U.S and Canada are able to import silver to cover their Official Silver Coin consumption. However, the point I was making was the huge imbalance now compared to 2001. This is the real issue.

      Again, combined Silver Eagle & Canadian Maple sales in 2011 were a pathetic 9.2 Moz, while this year they are forecasted to reach 75 Moz. What happens when demand for silver really explodes across the world?

      The U.S. and Canada can’t even produce enough silver to supply one aspect of their silver market. What about industrial, jewelry and silverware demand?

      steve

    • “Nobody knows exactly where that Silver came from.”

      Probably being drained out of those dubious precious metal ETFS like the SLV where the “metal” can be held in sub-custodian vaults, as well as unallocated and allocated accounts in London where no genuine independent audits are conducted. I do also remember a comment made by CEO Tom Power of the Sunshine Mint in a recent Silver Doctors interview when he mentioned very old looking silver bars starting to turn up recently. The sort of thing that you would find at the back of a vault.

    • Probably the Vatican.

  3. Hey Steve great report.

    While I love ASE’s and Maples – I buy way more 10oz by weight. I have to believe I am not alone when I see various mint shortages in 10 oz bars.

    Any thoughts.

    And as always – thanks again for all you do.

  4. Steve,

    Another way of looking at US coin sales is to compare them (by year) against global silver production and the balance after deduction of straight industrial consumption.

    ie.
    2014 global silver production was 27,293 tonnes.
    Industrial consumption was 18,503 tonnes (68% of new supply).
    US silver coin sales were 1,390 tonnes. Which represent 16% of the available new supply after deduction of industrial usage. That is quite a high % of global available supply considering the US only makes up 4.5% of the world’s population!

    The same calculation for earlier years result in the following:
    2013 ~ 18%
    2012 ~ 13%
    2011 ~ 25%
    2010 ~ 14%
    2009 ~ 9%
    2008 ~ 10%

    Admittedly, industrial consumption is likely to fall amidst this global recession – but so also is silver production as base metal mines reduce production and/or close operations with commensurate loss of bi-product silver.

    Regards and thanks for your reports.

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