The One Silver Factor The Fiat Monetary Authorities Are Worried About

There is one factor in the silver market that the Fiat Monetary Authorities and Banking Institutions are deeply concerned about. It has to do with controlling the public’s understanding of what is “Real Value” versus “Perceived Value.”

While the Fed and its cohorts in the banking industry continue to print money as well as offer plenty of digital liquidity to give the illusion of solvency in the financial system, cracks are beginning to appear as more investors become reacquainted to the 2,000+ year history of silver money.

Things are starting to get out of hand as Central Bank monetary printing goes exponential.  This is clearly seen by the huge expansion of Canadian base currency explained by Mike Maloney in the video below:

Mike Maloney Canadian money printing

Mike describes the increase of Canadian base currency in the last decade as “Outrageous.”  You can see the short video at the link: Outrageous Canadian Monetary Expansion.

The only way the Central Banks can continue their insane policy of monetary debasement, is by controlling the public’s confidence in the currency.  Because gold and silver are competing currencies, they pose a threat to this current great transfer of wealth to the rich.

Which is the very reason the value of gold and silver are manipulated.  Anyone who thinks otherwise is either a NITWIT, or has a vested interest in bending over for one’s fiat monetary masters.

Silver Investment Demand Is The Factor The Fiat Monetary Authorities Are Worried About

The world supplies enough silver a year to meet its industrial, jewelry, silverware and photography needs, however, rising investment demand is the factor that could seriously throw the whole balance out-of-whack.

Many of the typical run-of-the-mill analysts which you can find taking up space at one of the fine banking and brokerage institutions, continue to focus on industrial demand as a key driver for the silver price in the future.  I totally disagree.

Silver consumption by industrial applications remains relatively flat at an average 475 million ounces over the past six years.

Silver Price vs Industrial Consumption 2

Even though these same analysts provide forecasts of increased silver demand by industrial applications within the coming decade, peak oil will put a cap on growth in this sector.  We may see a small increase of silver consumption by industrial applications, but nowhere near analysts’ forecasts.

GFMS produced a report for the Silver Institute on silver consumption in the Industrial sector.  This report released in March of 2011, had the following chart:

GFMS Industrial Applications

This chart showing approximately 485 million oz for 2010 was produced before revisions were made in their 2011 World Silver Survey.

As you can see from my chart above, the world consumed 501 million oz of silver for industrial applications in 2010, the highest amount ever.  According to this chart, GFMS forecasted industrial silver consumption to reach 600 million oz by 2013.

Thomson Reuters GFMS will put out their 2014 World Silver Survey later this month with data and figures for 2013.  However, in their Silver Update provided November last year, they forecasted industrial silver consumption to increase five million ounces over 2012…. which puts the total at a whopping 477 million.

As we can see, it didn’t even come close to their 600 million oz forecast.

While industrial silver consumption remained virtually flat since 2007, demand in another sector grew substantially.  In just six years, the demand for Official Silver coins increased from 39.7 million oz in 2007 to 136 million oz in 2013.  The 136 million oz figure was provided by the CPM Group in a press release of their 2014 Silver Yearbook.

Silver Price vs Official Coin Sales

Here we can see that demand for Official Coins (Silver Eagles, Maples, Philharmonics, Pandas and etc) is in an upward trend, increasing nearly 100 million oz (240%) since 2007, while growth in the industrial sector is dead as a doorknob.

If we combine the total amount from the other sectors that consume silver, jewelery-silverware-photography fell from 363 million oz in 2007 to a forecasted 298 million oz in 2013 (according to data from the GFMS Nov 2013 Silver Update).

While industrial silver demand remained flat since 2007, the net gain of 31 million oz came from increased Official Coin Sales:

Estimated Change from 2007-2013

Official Coin Sales =  +96 million oz

Jewelry-Silverware-Photography = -65 million oz

Net change = +31 million oz

Furthermore, Official Coin sales now represent 17% of total mine supply compared to 6% in 2003:

Official Coin Sales vs Total Silver Mine Supply

So, the real winner in silver demand… goes to “Official Coin Sales.”  Of course this is only part of the story, but I believe it will become more of an important factor in the future.

Global Silver Mine Supply Continues To Grow, But Government Sales Fall Off A Cliff

Total world mine supply increased from nearly 600 million oz in 2003 to an estimated 783 million oz in 2013.  I estimated total mine supply by averaging CPM Group’s 763 million oz figure with GFMS estimated 804 million oz for 2013.

As mine supply increased over 180 million oz since 2003, net government silver sales…. dropped like a rock.

Net Government Silver Sales

According to the Silver Institute (figures provided by GFMS), net government silver sales fell from 88.7 million oz in 2003 to an estimated 7 million oz in 2013.  We can no longer depend on additional supplies of silver from either Chinese, Indian or Russian governments.

Matter-of-fact, I would imagine these BRIC countries will now hold onto and possibly increase their government silver stocks for strategic industrial and economic purposes in the future.

Even though world silver mine production is likely to increase for the next several years, peak oil will push the extremely fragile global financial system over the edge, putting a real Kibosh on future silver supply by the end of the decade.

“Real” versus “Perceived” Wealth-Value

Americans continue to invest in the biggest Ponzi Scheme in history… many are completely clueless.  Due to the Fed’s QE – Quantitative Easing policy, a great deal of perceived wealth made its way into the stock and bond markets.

In a just five quarters, the U.S. Retirement Market increased from $19.5 trillion (Q3 2012) to $23 trillion (Q4 2013).  This was an amazing 18% increase in 16 months time.  Why on earth would the typical American give much thought to investing in gold or silver when their retirement plans are making them rich?

Gold & Silver Investment vs U.S. Retirement Market Q4 2013

In comparison, if we add up all the Gold & Silver Eagles sold to date and then multiply them at the current spot plus a fair premium, total value of these coins represents $36 billion.  Moreover, the current value of the GLD & SLV ETF’s is $40 billion.  These two investments don’t even register on the chart… they are nothing more than a flat smudge on the graphic.

I gave a conservative 1% ownership of U.S. gold and silver assets ($230 billion) compared to the U.S. Retirement market.  The precious metal market is still supported by a small fraction of U.S. citizens.

The reason the fiat monetary regime is worried about silver investment demand is that it could throw a monkey-wrench into their plan of controlling the price of silver.  So.. if the price of silver gets out of hand, so does the ability to keep confidence in the U.S. Dollar and all the worthless paper assets that are tied to it — such as the U.S. Retirement Market.

During the latter part of the 1970’s decade when the price of silver skyrocketed towards $50 an ounce, investors were increasingly buying silver.  According to the Silver Institute’s 1979-80 price history:

World economic and political events also were coming to bear on the silver market, most notably in the form of a major cyclical upward surge in inflation throughout the industrialized world. Sensing that silver prices should be adjusting upward to compensate for these inflationary trends, many investors decided that silver prices between $4.00 and $5.50, which had prevailed during most of the late 1970s, were too low. Investors ceased selling their old silver holdings, and instead began adding to their holdings. This added further upward pressure to the price of silver. Simplistic retrospectives of the silver market in late 1979 tend to focus on the high-profile purchases of large amounts of silver and silver futures by various wealthy individuals; in reality, there was a tremendously broad-based rush to buy silver by investors worldwide at the time.

As silver prices rose above $15.00 in September 1979, fabrication demand began to be affected. On an annual average basis, industrial silver use fell a relatively mild 0.9% to 445.1 million ounces in 1979. Demand had held up reasonably well during the first three quarters of the year. However, a sharp cut-back in demand in the fourth quarter led to overall annual decreases in silver use. By some estimates, industrial use of silver was 40% lower in the last quarter of 1979 than it had been in the first quarter of that year.

Investors worried about inflation stampeded into silver during 1979.  This also caused the price to continue to rise.  However, a high price impacted industrial usage which fell 40% during the last quarter of 1979.  On the other hand, the higher price of silver in 2011 (average $35.12) had a much less impact on industrial consumption than it did in 1979.

Industrial silver consumption only declined 13 million oz from 501 million oz in 2010 to 488 million oz in 2011.  Again, as my chart above shows, industrial consumption remained flat regardless of the movement in price.

With the price of silver reaching nearly $50 in 2011, 5 margin hikes guaranteed the end of that short-term bull market.  In the past three years the silver market has been in a slow grinding decline.  However, retail investment demand for silver has picked up considerably as prices continue to fall.

This is quite different from what took place in the silver market between 1982-83.  Again, according to the Silver Institute’s 1981-90 decade:

In late 1982 investor interest in silver was rekindled by several forces, all of which emerged at roughly the same time. The international financial market panic led some investors to turn to silver. Others were attracted by what they saw as unsustainably low prices. Investment demand also was encouraged by a rapid easing of credit market conditions by monetary authorities in most industrialized nations; this easing led to an immediate revival of inflation fears. As a result of all of these forces coming to bear at once, investment demand picked up during the second half of 1982 and the first quarter of 1983. This influx of investor buying helped take silver prices from the June 1982 low of $4.98 to a peak of $14.72 in March 1983.

It was the increase of silver investment demand that pushed the price of silver from a low of $4.98 in June 1982 to a high of $14.72 in March 1983.  Interestingly, quite the opposite took place in 2013.  As investors purchased 35-40 million oz more Official Silver Coins than 2012, the price of silver fell from $32 in Jan 2013 to a low of $19 by year end.

Now, we don’t know how much additional physical silver demand came in the form of wholesale bars, smaller bars and standard rounds in 2013.  I would imagine this figure increased as well.   Some of this data will be released in the 2014 World Silver Survey.

The big difference between 1982-83 and 2013, is that the Fed and Central Banks were not funneling $trillions of monetary liquidity into the Stock, Real Estate and Bond Markets during the 1980’s.  To keep the price of silver in check after its peak in 2011, the fiat monetary authorities thought a severely depressed silver price would distract investment demand.

Unfortunately for them, retail investors are buying more silver in the form of official coins than ever.  Even though official coin demand may seem insignificant compared to the entire global financial market… it is a crack that is beginning to appear in the Fiat Monetary system.

Peak oil, the falling EROI (Energy Returned On Invested) and the decline of net oil exports are putting severe stress on the already weakened global financial system.  The $23 trillion U.S. Retirement Market is nothing more than a huge Ponzi scheme which needs to be fed by a growing energy supply.

Because the world plateaued in global conventional oil production since 2005, the Fed and Central Banks embarked on the greatest monetary printing policy to give the ILLUSION OF GROWTH… when little or none existed.

Silver investment demand will be one of the key factors that will push the value of silver to new highs.  As more Americans realize they have invested in increasingly worthless paper assets, more will be motivated to move into physical assets such as silver to protect their wealth.

The huge increase of official silver coin demand over several years is just one clue that this trend is gaining speed.

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17 Comments on "The One Silver Factor The Fiat Monetary Authorities Are Worried About"

  1. Government issued coin sales are tracked, reported, and available for examination much more than bars or generic rounds. But the sales of generic are very good also. When an ASE costs 12% or more higher than a generic round, that is an incentive to buy the non-government issued.

    One thing about silver is as the cost per ounce goes up sales go up. I can’t see that dynamic changing unless the price reaches a multiple many times its’ current price. That is different from almost all other commodities and consumer products. And investor sales are up with prices suppressed downward. Sales are growing at a time price has been going down. It seems the far-less-that-5% of the population buying silver is undeterred from “on-paper losses” in the short term.

  2. china’s biggest bank ICBC has special precious metals section in some branches. gold and silver bullions are on display in every branch.
    chinese citizens haven’t realized that silver is a steal at current price.

  3. Silver usage in photography is surely likely to drop significantly in the coming years potentially freeing up Ag for investment demand. I am surprised the demand for Ag in photography only dropped as much as it did between 2010 – 2013. This may fill the investment gap? fwiw I am long phys Ag and I understand the energy issues surounding mining as I work in mining (Iron Ore). Maybe this pushes the price increase in Ag out from the medium term to the long term?

    • according to ’13 World silver survey, demand for photography had fallen from 192 million oz in ’03 to 58 million by ’12. The other component showing a big decline was silverware, falling from 85 m/oz to 45 m/oz in the same time frame. These two were responsible for freeing up 175 m/oz for the other growing areas of silver demand.

      Photography and silverware will likely continue their decline but together they now represent just about 100 m/oz compared to their ’03 278 m/oz…seems the decline will be smaller (%) and slower from here and likely well outpaced by other areas of demand.

      • seems the really big question is around the silver ETF’s which supposedly have grown from 200 m/oz in ’08 to over 600 m/oz in ’13…so much of investor demand has gone to these ETF’s but have the ETF’s actually been buying and holding this 400 m/oz increase over this period? This would have represented about 80 m/oz yearly demand over this period…do these ETF’s represent freely held silver or is this just paper claims not eating into physical supply?

        • 25% increase in silver mining production ’03-’12 (597 to 787 m/oz)
          10x increase in price of silver ’03-’11 ($4.88 – $47)
          4x increase in price of silver now, ’03-’14 ($4.88 – $19.30)

          Crude oil
          4x increase in oil price $26 – $100, ’03-’14

          Ore grades falling
          41% decrease in yields from ’05 (top 6 silver miners) and yet their output still fell 3%

          So, to sum up…

          Mining is likely to top out in ’14 before beginning it’s fall in ’15 due to lack of exploration, falling yields, high prices of production…little to no further government dis-hoarding

          Elastic sectors of demand (photo, silverware) now comprise 1/3 of their former demand while the inelastic portions of industrial, jewelry, and investment (bars, coins, ETF’s) are all likely to continue increasing.

          All that said, the price of silver isn’t really about supply/demand, now is it…so the price will be whatever the COMEX says it is until something changes. What happens after that is anybody’s guess…but I’d rather have silver in hand than not on that day.

          • nobody,

            You bring up several good points. I believe the price-value rise of silver in the 1970-1979 and 2000-2013 periods were due to the rise in the price of oil. Also, can’t forget that when the price of oil jumped 4 times higher and the amount of processed ore increased say 80-100% since 2000, you have a double-whammy. Costs increased and the amount of ore one has to process doubles.

            Unless we have a global financial & economic meltdown, global silver production will continue to increase for several more years… maybe even 2020.

            The increase in investment demand is the key the Fiat Monetary Authorities pay attention to. All the other fabrication demand… that could give a rats ass about. Investment demand must stay in check or price would get out of hand.


  4. Outlookingin | May 7, 2014 at 9:27 am |

    Exceptionally concise report Steve. Thank you.

    An additional yardstick. The gold/silver ratio or GSR = How many ounces of silver does it take to buy one ounce of gold, when using the currenct USD valuation.

    For thousands of years this ratio held fairly steady within a range at approx. 12:1 to 18:1

    It has only been for the last century (since the formation of the federal reserve [private] bank) that the ratio has moved to such extreme levels. Mostly in a range between 48:1 and 80:1 with valuations above 100:1 at times!

    I’m convinced that this ratio will eventually revert back to its long time historical average, considering the EROI of mining further stocks and the destruction and loss of past stocks, thropugh industrial uses.

    This will mean one thing only – higher valuations in what ever “yardstick” is used to set value.

  5. Robert Happek | May 7, 2014 at 4:57 pm |

    I am tired of the never ending assertion that the gold to silver ratio was destabilized by the creation of the Fed in 1913. How about a fundamentally different hypothesis: During the past 100 years we saw a proliferation of paper money. All true. However, we also saw an explosion of metal mining, especially base metals like copper, zinc etc. Fact is that the majority of the silver mined comes as a side product of base metal mining. Very few mines exist which produce silver only. Gold on the other hand is mostly produced in pure gold mines. So the gold to silver price ratio is simply the result of the different cost structures in mining silver versus mining gold. The huge amount of base metal mining provides financial support for silver mining. That explains in my opinion why the ancient price ratio of 16:1 has changed over the years to 60:1. The price ratio could be back to 16:1 like in the past. In order for that to happen, industrial demand for base metals would have to collapse (say due to collapse of industrial production). Gold and silver in the middle ages when there was very little industry is not the same as gold and silver in today’s industrial societies and economies.

  6. Steve,

    all metals along with oil (gold, silver, lead, copper, zinc, tin) soared 5 to 10x’s from ’03 to ’11… Nickel rose over 10x’s and has collapsed even worse than silver.

    The Baltic dry index is generally saying that China has slowed significantly, is and will be building less, and further has very large inventory’s of metals on hand. This should mean copper, zinc, lead mining are about to stagnate or slow??? And gold miners are not picking up their pace at these prices. And at these prices, scrap sales are likely to fall likely by 50 m/oz, closer to it’s trendline? All together this would mean something like a 5% overall decrease in supply.

    Usually when demand/ supply/ inventory all indicate the price can go no lower…the price is going to go up…

    • roguefaction | May 8, 2014 at 5:24 am |

      “The Baltic dry index is generally saying that China has slowed significantly, is and will be building less, and further has very large inventory’s of metals on hand. This should mean copper, zinc, lead mining are about to stagnate or slow??? ”

      Dear Bodyless Sir/Madam…well played – allow me to add…

      as you are doubtless aware, the Baltic dry index serves as a measurement of maritime traffic – IOW… an index of how much international shipping is occurring as a reflection of foreign trade.

      China has slowed significantly… in

      err… what exactly? Sending domestically produced goods to foreign clients whose postdue arrears have built into a virtual tsunami of mounting debt threatening to wash over the accounts of Chinese manufacturers whose payables are not structured to allow for Walmart et als’ ad hoc legaldept/accountancy games as a representation of western insolvency?

      China is positioning itself to leave the west adrift in its’ own leaking liferaft….inter alia building the Eurasian trade alliance which will decrease the necessity of shipping foreign-bound commerce via contested sea routes still hounded by the Barbary Coast Pirates of the USSA naval corsairs.

      Think rail traffic…. Trans-Siberian style… containers diverted from Shanghai to the Kyrgyzstan dry ports and more northern commercial exits. Westward bound. Would you agree that updating ones’ knowledge base to be relevant to the rapidly changing conditions in which the western world finds itself…. whether or not the “media” there choose to report them…

      is highly recommended? We are in any case indebted to you for bringing this matter to attention.

      The spice will flow. The Silk Road is rebuilding. The only road that matters anymore in the fallen lands is the one out of Dodge.

      I remain…your most loyal etc etc;

      • Excellent points; points well taken.

        China and Russia will trade. Russia has massive gold deposits [mines and already refined], and energy China has an insatiable appetite for. China produces the consumer & technology goods Russia wants. To hell with the dollar; and by the way what would China want to buy from the rest of the world that they can’t produce [with Russian partnerships?].

        • China’s two decade building boom is slowing…overall demand for iron ore, etc. will be flat to down…coupled w/ oversupply of iron ore, copper, etc. Commodity prices will fall further.

          wow…Russia as a trade partner to replace the US…Russian GDP is $2 T or it would take 8 Russia’s to replace the business China has w/ the US. US/EU/Japan account for $850 B of China’s exports vs. Russia’s $40 B.

          And as for what China wants to buy from the rest of the world…China is the world’s second-largest importer. In 2013, China bought US$1.95 trillion worth of imported products. That total is up by 93.9% since 2009. $440 B electronic equip, Oil $314 B, Machines $170 B, Ore $150 B, Medical Equip $110 B, Vehicles/Plastics/Chemicals $70 B each, Copper $50 B…not much on this list beyond oil can come from Russia.

          • China will buy from the rest of the world what they can buy with their huge stockpile of foreign fiat currencies [physical or digital] and U.S. T bonds. They do want to reduce their supply of unbacked paper and debt from insolvent nations, like the U.S.

        • There is another little mentioned but prime candidate for a new Eurasian axis of power, Germany. Both China and Russia already have huge bi-directional trade links. Not a lot of USA/Germany love ATM, what with NSA and vanished gold stocks.

          Now the rail link is a reality from China into Germany, with initially three trains a week carrying up to 50 containers, there would be much reduced vulnerability to trade links.

          If the UK leaves the EU, expect Germany to be out the door straight after.

          Anyone know if Germany is building up its PM stockpile? Perhaps China/Russia might help ready for the New DM?

  7. The dollar is nearly cooked now…with the IMF opting to make its loan in SDRs to the Ukraine instead of the dollar. Then the Ukrainians promptly bought gold with a big chunk of the loan?!

  8. Great article Steve, keep them rolling! In addition to the the many fundamentals you state, I believe that increased industrial demand for silver due to solar energy (solar pannels) will put additional up-side pressure on silver in the future (China!), as peak cheap oil is here, the nat gas fracking hype wears off, and energy in general will get even more expensive. This will put additional strains on the miners and silver mining output, lead to even more economic contraction, forcing TPTB to print even more if they wish to keep up the status quo, in a self-reinforcing feed-back loop.
    Most people are stuck in the present with a mindset of the past. You use logic and reasonable assumptions to extrapolate into the future. I like that a lot! x

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