What Happens When Big Money Moves Into Silver?

The event that will transform the Silver Market is when BIG MONEY finally moves into the sector in a BIG WAY.  Even though the precious metals prices experienced new highs in 2011, this was due to only a small fraction of investor demand.  The overwhelming majority of investors were still in playing in the Stock, Bond and Real Estate Markets.

However, the time when BIG MONEY finally moves into the precious metals sector grows closer each day.  Michael Belkin discussed this in his recent interview on Kingworld News.  Michael provides a very expensive newsletter to large clients (institutions & Hedge Funds) on what they should be buying.

During the end of 2015, Michael put a new gold stock newsletter in which he stated gold stocks were going to really take off in the beginning of the year.  A month later he came out with a group of silver mining stocks that he forecasted would experience tremendous gains.  Well, Mr. Belkin HIT THE NAIL ON THE HEAD.

Both the gold and silver mining stocks have performed incredibly over the past 4-5 months.  Mr. Belkin believes this is just the first inning of the precious metals bull market.  Moreover, Mr. Belkin believes when BIG MONEY finally moves into the precious metals market, it will really drive the prices to extremely high levels.

Before we get into understanding how BIG MONEY will impact the silver market, let’s look at interesting trends.

Two Interesting Trends In the Silver Market

These next two charts provide some insight of what is taking place in the silver market.  The first one is an updated chart on global silver bar & coin demand.  Before the first crash of the U.S. financial and economy in 2008, global silver bar & coin demand was 56 million oz (Moz).  However, this changed in 2008 as investors purchased nearly four times the amount in 2008 at 192 Moz:

Global-Silver-Bar-&-Coin-Demand-2006-2015

Even though there were some years were physical silver investment declined (2009 & 2012), the overall trend has been higher.  As we can see, investors purchased a record 292 Moz of silver bar & coin in 2015.  Basically, investors are buying physical silver at nearly six times the rate they were before the financial and economic turmoil in 2008.

NOTE:  This chart is using data from the GFMS Team at Thomson Reuters based on including private silver bar and coin demand.  This was the first year that private silver bar and coins were included in the data.  Thus, several prior years were revised higher due to adding in estimated private silver bar and coin demand to the total.

Thus, investors continue to purchase record amounts of physical silver investment even though the price has declined over the past five years.

Now, the next chart is more interesting for different reasons.  I was actually surprised by the data when I put it all together.  The amount of global silver scrap that enters the market is based on price.  The higher the price, the more silver scrap makes its way into the market.

However, if we look at the big drop of silver scrap in the past two years, we see a troubling trend:

Global-Silver-Scrao-Supply-2006-2015

When the price of silver ranged between $11.50 and $15 from 2006-2009, the amount of global silver scrap was over 200 Moz.  Then as the silver price moved higher, so did the amount of silver scrap.  When the average annual silver price reached a record $35.12 in 2011, the amount of silver scrap also hit a record of 261 Moz.

Of course, as the silver price declined, so did the amount of silver scrap.  However, if we look at the amount of silver scrap for 2014-2015 and compared them to the figures for the 2006-2009 time period, we see a much different picture.  The silver price for 2014 ($19) and 2015 ($15.7) were both higher than the years from 2006 to 2009, but the scrap supply was much less. 

In 2014, global silver scrap supply was 30+ Moz less than the 2006-2009 average, and over 50 Moz less in 2015.  So, the question is… why is silver scrap supply falling so much?  By analyzing these figures and through conversations with the USGS silver specialist, I believe a lot of the high-quality silver scrap was already sold into the market.  Even though there will be additional volumes of silver scrap in the future, it will take an even higher price to bring less quality (more expensive) supplies into the market.

Total Physical Silver Investment Is Peanuts Compared To The Rest Of The Market

Now that we understand silver bar & coin demand is surging to record highs while silver scrap supply falls, this last chart really puts it all into perspective.  If we add up all the physical silver bar & coin demand from 2008 to 2015, it equals a measly $35 billion:

Physical-Silver-Investment-Big-Buyer-Forecast

That’s correct.  I took the total demand for each year and multiplied it by the average annual silver price.  The total amount of physical silver bar & coin demand was 1.57 billion oz, which was worth $35 billion.  That’s correct, total global physical silver investment equaled a lousy $35 billion.  That’s not much in the whole scheme of things if we compare it to the broader stock, bond and real estate markets.

Furthermore, if we include the amount of Dollars that trade daily on the FOREX market, it’s even more hilarious.  According to Fxweek.com, daily trading on the FOREX market was $5.3 trillion in 2013.  I would imagine that figure has increased since then.

Okay, if BIG MONEY moves into physical silver and only invests $100 billion, it would consume three times, or 4.71 billion oz of silver.  This is based on the total investment of $35 billion from 2008-2015.  Basically, three times the investment… three times the amount of silver needed.

Unfortunately, that amount of silver will not be readily available.  I would be surprised if BIG MONEY was able to acquire 500 Moz.  Which means, if supply is tight, then PRICE MOVES MUCH HIGHER.

This is not a matter of “IF”, it’s a matter of “WHEN.”  This last chart should make investors realize just how OUT-OF-WHACK the system has become.  In just six months, total Government Bond’s that have negative interest have almost doubled:

Amount-Of-Govt-Bonds-With-Negative-Interest

In the beginning of 2016, the governments of the world had $5.5 trillion in bonds with negative interesting.  Then just five months later, it surged to $10.5 trillion.  This is not a good sign at all.  For the amount of global govt. bonds with negative interest to nearly double in less than a year, investors should be extremely worried.

While Central Banks will continue to issue a bunch more bonds with negative interest, this is not a long-term sustainable policy.  When the system finally cracks, BIG MONEY will move into silver that will totally transform the market.  How high the price of silver goes… will be a sight to see.

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19 Comments on "What Happens When Big Money Moves Into Silver?"

  1. Steve,

    “The silver price for 2014 ($19) and 2015 ($15.7) were both higher than the years from 2006 to 2009, but the scrap supply was much less.”

    Could be that all of the “low hanging fruit” was scrapped in 2006 – 2009 but it could also be market perceptions and expectations. The average price of silver 2000 to 2005 was about $5.00 an ounce so when it moved over $11.00 people thought it was a really good deal. After $30+ in 2022 & 2012 people are waiting for 30+ again to sell scrap.

    If silver gets back in the $25 – $30 range I think we will see a very large increase in scrap sales.

    SteveW

    • 2011 & 2012

    • SteveW,

      Actually, most of the silver scrap comes from Industrial recycling and Silverware. I spoke with the USGS Silver Specialist a few years back and he told me that most of the HIGH QUALITY silver scrap had been recycled. What remains is HIGH-COST recycling Industrial Silver and to a lessor extent, Silverware.

      A lot of silverware was recycled back in 2011… nearly 51 million oz. People were selling Grandma’s Silverware that she gave them when she passed away. Americans aren’t buying much Silverware these days.

      Anyhow, total Silverware recycling fell to 29 Moz in 2015. Industrial silver scrap supply fell as well… about 10-15%.

      Sure, silver scrap supply would increase going forward, but a lot of older silver Jewelry and Silverware purchased when silver was $5 is gone. Folks who bought silver Jewelry when the price was at $20, have no incentive to sell because there isn’t much gain. However, it’s different with gold jewelry. It makes a lot of sense to go down to the pawn shop and sell $500-$1,000 worth of gold jewelry.

      steve

      • …”makes a lot of sense to go down to the pawn shop and sell $500-$1,000 worth of gold jewelry”. Maybe, but at the pawn shop they will give you 25% less than what the jewelry is worth (spot price), so to get $500-$1000 they’d need to sell a full ounce of solid gold jewelry. Which very few people own, and when you buy jewelry you will pay (usually) 100% over spot for the metal as much of the price is made up by the work put in (except for inherited jewelry). So I don’t see a lot of such “supply” for the US and Canada. Time will tell how this all pans out, but the writing is on the wall for those that care to look. Thank you Steve for an awesome blog where you share your fantastic work and insights. All the best to you and to all.

        • “Pawn Shop/fence”: where junkies and thieves part with their findings for 8 cents on the resale dollar. People who want actual value for their metal find a refiner, or trade directly for what they need at a swap meet. Even a jewelry store (locally-owned, not mall-chain store) will give a fairer deal and be a clean bright place to do business.

          Don’t need to sell. Sell because something even better has come your way and you are getting some huge mark-up on your buy price (in spending power, not nominal fiat currency). Risk-off.

  2. We should think much more about the inflation.That is the real driver for PM.

  3. Even the threat of an Brexit don’t lead to a significant increase of gold.Real inflation is the driver.

  4. I won’t sell at $150,- And won’t sell at $250,-

    Maybe i’ll use it to buy some bread when the time comes.

  5. Link Lindquist | June 15, 2016 at 5:09 am | Reply

    Thank you Steve, as always you keep puting out excellent analysis w/respect to Ag and it’s intrinsic energy input values that include human capital (labor), brain capital (geologists), physical capital (machinery), energy capital (oil), refinery capital (smelters/refiners) ETC, which is WHAT MAKES EACH OZ OF Ag (and of course Au, which requires 100X the Oil output) hold hundreds if not thousands of manual hours of back breaking human labor INTRINSIC within each ounce, making it THE ULTIMATE STORE OF VALUE and THE ULTIMATE INVESTMENT @ these obsencely LOW PRICES OF $17.40-$17.50/oz TODAY-THE SAME PRICE IT WAS 37 years ago when we had OVER 5Bn above ground Ounces JUST IN THE USA ALONE, sans the 12,500 industrial uses on top of the Exponentially Exploding Investment Demand which is setting records each week YoY and MoM for the last 2 years and Supply which has peaked and is Expoentially dwindling YoY and MoM everyday due to the Base Metal Mining Effect, which was ALL the Consequence of a speciously strong USD$ and the asinine (DXY) or US Dollar Index, which prices every commodity (including Tier One Capital according to the BIS I guess in Gold) in worthless Dollars. Ever since we monetized our debt beginning in early 2009, something T.S. Geithner swore we would never do and we laughed at Zimbabwe for doing not TEN YERS EARLIER, I knew the Dollar was poisoned and it was only a matter of time, and now the ESF is clearly running on empty and we have MAYBE 8-10 weeks before P.M., ESP. Silver, RIP UP through their previous Highs!! I believe we are in the facsimile situation we were in in winter of 2010 for Silver as stockpiles are just being DRAINED and according to Harvey Organ, the Crimex should go bust at the end of this month! he Rothschilds/Vatican have miore Gold to lease TPTB, but their Ag supplies are hand to mouth, as are the Ag Miners, so NOW IS THE BEST TIME TO PUT 30-50% of ALL your money, IMHO, that you have saved or are planning to spend and need for THIS OCTOBER and later, on ASE’s if you’re keen on the Tax breaks, which are selling for $2.29 over spot-THE LOWEST PRICE for any quantity online @ SDBullion and $2.39 over Spot any quantity @ JMBullion, or, If your’e ALL ABOUT THE OUNCES and most bang for your buck, then I strongly recommend the 10 oz Sunshine Bars (which is and has been THE SAME SILVER USED TO MAKE EAGLES) which are selling for .80 cents over spot both on JMBullion AND a tad higher on SDBullion!
    I think the ‘Brexit’ result will be a litmus test as to whether TPTB here in America will LET US CHOOSE OUR ELECTED OFFICIALS… This election has been the most fraudulent, pathetic, pedagogical, riddles with skullduggery, sham, and TPTB aren’t even trying to hide it. I suspect the Brits are in for a NASTY surprise when the RULING Class elites (who were NEVER elected, remember) imperiously take a page out of American Election policy playbook and DENY the conspicuously blatant 75-80% of the U.K. Voters who ALL WANT THE HELL OUT of a system that usurps their heritage, culture, sense of history, and oh yes, BLEEDS THEM OF ALL THEIR EARNINGS WHILST PENALIZING THEM FOR NOT BEING ANGRY THAT 11th Century culturally incompatible Muslims who behave like animals and are suddenly ‘the protected class’ due to demonic dhimmitude orders from the NWO whilst raping and pillaging their homeland and ordering the natives to go to re-education camps this summer to learn compassion!! It’s literally like a erie SCI-FI HORRO Film, but its’ NOT! When they are denied the Brexit, as I fear they will be, as Scotland was, and they can FINALLY feel Scotland’s outrage, I have a hunch we may see an outright PHYSICAL REVOLUTION in Britain which doesn’t augur well for Trump on November 4th. (No doubt this was a subject of discussion at the venal, exalted, and just plain execrable Bilderbergs’ meeting in Dresden last week as we know they ponied up quite a sum of ~$150M eq USD just for the next 10 days for Quotidian MASS Propaganda to be aired in Britain-ALONG of course on their agenda was HOW THE HECK THEY CAN DE-THRONE the DONALD) I fear that just as in California, where Sanders won 69% to 31% & THEY REFUSED TO RELEASE THE EXIT POLLS, and they basically FLIPPED the #’s in Hilary’s favor. My fear is EVEN WITH 75% or 3/4 of Americans voting for Trump, the peremptory nature of our Ruling Class will coerce Hilary on us, and if that happens, we are facing 1776 combined with a mutant 1861 hybrid ALL OVER AGAIN! The circumstances that got us here are different, but a REVOLUTION ACROSS Europe and the USA will be the end result if the consent of the governed is dismissed as ‘worthless’ BOTH in G.B. as well as here in the USA, and if it is not respected, and thus far, it has been utterly in your face DESPOTIC TYRANNY.
    #Ready for Fireworks this Fall from Door County, Wisconsin…..

  6. I think “big money” IS THE SILVER PRICE, as the big players own the system. Fizz silver is such a tiny market that big players are only allowed to paper-play with silver; as a industrial metal it is too important; *THEY* openly admit that (paper) silver is a 5 Trillion market: every day the global silver production is traded “in paper”. There is a tremendous disconnect btw paper and fizz to the tune of 250:1… This is not sustainable. How and when this paper PM ponzi collapses is anyone’s guess, but I doubt it will be “Big (Western) money”… If anything it will be the growing stacker community around the globe (than includes China, India and Russia) that will suck the fizzical goodies from the western banking system. Big money will only be settled with cash (or fizz at a much much higher price – think I think x250 might be an ultimate ballpark level silver (in current U$ terms). As the end nears the official price will likely do a lot of very funny/extreme “wiggles” that will ruin lots of “folks”. If you don’t hold it you won’t own it. GL to all – x

  7. When silver is at 250 $ stocks are at bottom.Then you have to change to good stocks or buying ground or an house.
    You must not sell all but a big part.This means the financial system cannot survive with those prices.
    So a new currency will appear.A currency reset.After that silver has (whatever this means) a normal price.

  8. The Federal Reserve did not raise it’s rates today , big surprise. What this bit of highly predictable news really tells us is how the Federal Reserve all along has been a decoy. The exchange stabllization fund built into the U.S Treasury are the ones to watch…like a hawk.

  9. Steve –

    I regularly read your articles, and it is good stuff. Today, no interest rate hike for the foreseeable future, and I cannot fathom who believed there would be one. This time, it was the job numbers, which were horrendous, but most economic indicators have been horrible. Yet, the media can only focus on one topic at a time, it appears.

    I know the fundamentals point to higher silver (both short and long if you are rationale and believe in supply and demand, etc), but there continues to be so much manipulation and interference. We’ve been at this place for a long time now where if contracts were actually redeemed for the underlying metal, there is in no way enough supply above ground to make delivery. The banks know this, but they also know that they can continue playing these games.

    That being said, silver has had a nice run up above $17. Given the spot price in no way represents the real price-discovery driven physical market, what is to say that the traders are not going to go short silver AGAIN, push the price back down to $14 or $15 in the spot market, make a ridiculous amount of money, and let the price slowly rise again.

    It’s like the Simpsons episode where Homer keeps burning his hand on the hot stove, never learning from negative reinforcement. In essence, unless major events happen, and I mean seriously major (not a b.s. jobs report miss or interest rate hike fear, but maybe a Deutsche Bank collapse), I don’t see how we will ever escape this trading loop that is making the banks ridiculous amounts of money consistently????

    – Cook-ie

    • “what is to say that the traders are not going to go short silver AGAIN, push the price back down to $14 or $15 in the spot market, make a ridiculous amount of money, and let the price slowly rise again.”

      Nothing stops them from knocking the price down again. It is getting increasingly more difficult to fight fundamentals, so I would say $14 is unlikely, maybe $15 only touching briefly, but no one knows.
      I’ve had a keen interest in silver since I collected it out of change starting 1964 or ’65. Waned a while due to family, etc. Got ignited again around 2011. and I’ve studied a lot. Perspective from having a B.S. in Geology as well.
      My opinion, which is only that: Silver and gold will not go up much in dollar [or other fiat] valuation until right before the economy “breaks or collapses”, in whatever form that takes place.
      People wonder what THE black swan or triggering thing will be.
      A collapse of a major financial institution? Maybe. A war? Maybe.
      Or just PM prices that can’t be capped on the COMEX? Maybe, but before that happens there could be large premiums on the actual physical selling prices over COMEX-set spot.

  10. http://www.ariva.de/btc-eur-bitcoin-euro-kurs

    Bitcoinperformance!Unbelievable.

  11. Maximum is17,8$ and 1309$.Then the PPT sets the cap!
    Several times we bounce back at those levels.

    • Right? We just continue back-n-forth until whatever MASSIVE black swan finally arrives…. I don’t have empirical data, but from just following the market over the years since silver was above $20, we appear to take a few steps forward, and then plunge back….

      I’m trying to stack, but I have very limited resources, so whereas I want the see true price discovery in the long-term (no clue what that timeframe is), I wouldn’t mind if it came back down for a bit so I can accumulate more.

  12. Small point but scrap silver now includes very little silver recovered from photographic processing.

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