<< <i>Silver is cheaper now than it was in the 1970's and FAR more scarce. I've never felt so sure about an investment in my life.
No offense.....but quotes like that make people poor very quickly. Over confidence causes blindness. >>
This is the common wisdom and it is almost always true--almost. However, we have an unprecedented situation here that has never been in our history. A supply/demand problem that cannot, or will not be solved even in the distant future. There's not enough silver and there won't be for a long time. Here in California, in Orange County where I live there was a 97% occupancy rate (I don't know the exact numbers now, but they are still high. I was a building instructor and I would be working with a developer who was building houses, condos, etc. This story is typical of ALL of my jobs: I was on a job and they were getting ready to build the model site--the first 3-5 models that would show what kind of houses people would have to choose from. The models were the actual models to be, but of course they were designed to be eye-candy in order to attract buyers from other develpments. Eye-candy wasn't necessary. Before we even broke ground on the model site, all 8 phases--120 houses were sold in a few weeks. People didn't even know what the models were going to look like--they only had descriptions and floorplans. It was a supply/demand issue here in California. Our $117,000, low-end condo became worth nearly 400k, and my in-laws $350K house became worth almost 1 million--supply/demand. We couldn't build houses fast enough for the people who wanted them. Of course you all know that this is what basic supply demand is. Well, we all know that this cycle is going to end, and those prices are going to drop again because the demand will change, and we aren't really running out of houses--just at that place at that time.
Silver is different. We have the same situation as the houses with the only exception being that not only can the end not be seen--it cannot even yet be conceived of. No one knows how we will get out of this mess and according to the things I've studied about it, they are about as close to getting an adequate substitute for silver, for industrial use, as they are close to finding faster than light travel. The demand and lack of supply are here to stay for a long time, and when the fit hits the shan, the prices are going to take off like a rocket. I'm not saying, sell everything, spend it all on silver and live in a cave until all comes to fruition. I'm only saying that I agree with Iwog--"I've never felt so sure about an investment in my life."
Peace,
coinfool "You broke the bonds and you loosed the chains; carried the cross of my shame, of my shame--you know I believe it..."
<< <i>I am not saying that silver wont go higher. I really dont care where it goes.
I am saying that whenever something is a SLAM DUNK...you are usually wrong. >>
Would you care if you were very certain that it was the best investment possiblity around? I would suggest doing a google search on Ted Butler, reading his archives, do your best to tear his arguments apart, including reading those who disagree with him and come to your own conclusions. But if you don't care to do that--of course--to each his own.
Peace,
coinfool "You broke the bonds and you loosed the chains; carried the cross of my shame, of my shame--you know I believe it..."
I am saying that whenever something is a SLAM DUNK...you are usually wrong.
Exactly how did you determine this to be true? Furthermore what indications do you have that silver is a poor investment? For someone who "doesn't care" you sure have a lot of opinions on the topic.
"...reality has a well-known liberal bias." -- Stephen Colbert
No one has provided a convincing argument that the mines are nearly depleted, and that this level of production cannot be maintained for the foreseeable future. Government stockpiles may be depleted, but scrap recovery has been fairly consistent for the past decade. Assuming there is a 10 - 15 % gap between demand and supply, this would surely exert upward pressure, but not so much that silver prices will rocket upwards. Any increase will ultimately be mitigated by increasing mine activity, increasing recovery of scrap, and decreased demand. Prices may go up, but I would agree with cohodk -- the future direction in the price of silver is far from clear.
Sorry for the long article. I offered this diatribe but attached the article because I thougt it to be well written and will at least arm most of those that read this article with a minimum of silver knowledge. Personally, I have owned a fair amount from time to time and sold it from time to time over the course of 25 years. I really do wonder how many people out there are still holding $8 silver, just waiting, begging, wishing.
I am not a silver bug anymore but here is MHO.
1. "World supplies are almost gone and demand is still rising" Nah, world supplies are not gone. There are huge silver deposits that run from Alaska to Peru (go ahead and read the article below) and all over the world there are huge known deposits. Most people have no idea how many silver mines across the world will crank up as soon as it becomes more valuable to sell. Don't forget...It's about the money!. Yes, it will take two or three years to get it into consumers/investors hands (physical holding) but if you want to see some silver become suddenly available, let that stuff hit $10-$12 and watch the markets become flooded with it. If you think this is speculation just ask someone what happened in '79/'80. Also don't discount that there is a tremendous amount of silver in personal households...everybody has some silver, across the world. When the price goes up, there will be grandmas literally standing in line to sell the silver service, circ morgans, picture frames, bracelets...anything silver. I know this is true because I saw it. Then after everyone has traded in their silver, it will likely settle back to $6/$7 where it's been for the last 20 years and like it did after the last rush. Don't get me wrong, there were people buying houses with the money they made from silver in '79/'80 and it was a good thing and it could happen to you. Silver at best has been a spot play.
2. Ok, if you have 10-100 oz bars...precious metals are measured in troy weight or 12 oz=1 pound so 100 oz - 8.33 pounds so you have 10-100 oz bars or 83.3 pounds/1,000oz of silver. But wait, you could just have the paper and let someone else buy and store the metal for you and give you a receipt. BUY NOW BEFORE IT TAKES OFF. Well, there is a lot to be said for that. If you can get $5/$6 silver then you should get some and keep it till there is an $8 spike and sell it then you could make money. Go to some of the internet sites that sell silver investments and you will notice they are not much different than car sales men...Last chance!, The Price Will Never be Lower, Make money while there is still time, BIG RED LETTERS, etc, etc. They are selling for commission, that's how they make money, actually that's how they get your money. And they want to give you a piece of paper for your silver, kind of like a deposit slip...yeah, there's a good idea (NOT). Ok, you're so you are not going to fall for that and you will take physical possession of your 1000 oz...shipping costs+commissions+service fee and your $6 silver is all of the sudden costing you $8.25 when it gets to your safe deposit box...oh yes, you will need a large one ($) for 83.3 pounds of silver. So, you still want an 83.3 pound nest egg to sit on (surely it will go up some day)?
3. Wait, you could just buy mining stock and make money at the source, you get a stock certificate and all's well. Wrong again, ever heard the story about having an opportunity to buy a stake in a silver mine in Utah where they are going to begin mining next year? Or the one about just discovering huge reserves in Montana, right near a railroad spur or the proven reserves, or the new mine in N. California with huge proven reserves and a limited opportunity to get in before it is offered to the public? The mining stock business is a big mess. I still have 300 shares of mining stock from 1990 and I think it is worth about $50 in total right now and I'm going to be buried with it. I know there must be someone that has made money from mining stocks but just for drill, everyone that has lost money in metals mining stock raise your hands.
4. Silver is grossly undervalued. Yeah, it is grossly undervalued, in fact in just the last 10 years it has lost about 30% of it's purchasing power just in adjusting for inflation. Still there is no increases because of demand or consumption or anything but it just stays flat, not accounting for the losses from inflation. So what if the price of physical silver increases 30% to that magical $10/oz mark, then maybe you are about even with other investments you could have made that did not make ANY money if you have had your silver for a few years...IF it rises 30%. Or, an even more rosy scenario, as one board member put it, just add a "0" to every thing from 20 years ago and that is the current price in 2005, then silver should be on the order of $70/oz...hummmmmmm...how could it just be $7/oz today and everything else cost 10x more? It must be an international, government conspiracy, yeah, that's the ticket. Nah, it's that reality thing...silver is worth $7/oz right now because that's what people are willing to pay for it, that is what is it worth and has been for a loooooooong time. You could do much better looking for extra leaf Wisconsins in bank rolls.
I could go on but I doubt people will read much further and still have room left for the article below. Oh, yes, don't forget to read the disclaimer at the end of the article.
SILVER
"An Economic Geologist’s Perspective"
By
Nigel H Maund
BSc(Hons)Lond., MSc, DIC, MBA, MIMMM, SEG
Consultant Economic Geologist
Mineral Consulting International (NZ) Ltd.
Investor Summary
The fundamentals behind the world silver market are looking increasingly strong. Silver bullion stocks of central and investment banks are at an all time low, or, in many cases, totally depleted. The demand for silver, especially in the diverse high technology and medical market segments (40%) is steadily increasing, as is the investment market segment in silver coins and bullion. The analogue or standard photographic segment, a substantial industrial market for silver, diminished in the last calendar year by a matter of a few percent only, despite the much vaunted demise of the silver market posed by advent of digital photography. A substantial proportion; i.e., 70% of the "Old Silver Scrap" market, comprising some 22% of the total market supply, was provided through the recycling of photographic film and paper. Hence, demand for silver in the photographic market is 85%, met through recycling within this segment. Furthermore, the "take off" of the digital camera market is restricted, in large part, to the young and relatively affluent (professional and young) market segments in developed economies. To make full use of digital photography, one requires a computer and/or printer infrastructure, plus expensive printer cartridges, re chargeable batteries, and photographic papers, that are, collectively, generally beyond the pocket of the mass market. Therefore, it seems unlikely that digital photography will become a substitute for mass-market traditional photography in the near future. Given the growth in general affluence of the Asian markets, the mass market for conventional photography is likely to expand at a faster rate than the growth of digital photography, offsetting any decline in developed countries. Therefore, to analyze the silver market one has to see outside the photographic market segment.
In contrast to gold, where the bulk of mine supply is derived from primary gold producers (i.e.; those mines mining gold as the principal product), the structure of the silver supply side from mining is totally different, and remarkably inflexible and "tight". Silver is primarily supplied as a secondary by product of base metal (copper, lead and zinc) mines, or, as a co – product with base metals in the tetrahedrite – silver sulfosalt dominated deposits or from epithermal gold - silver deposits. Standalone silver mines comprise one of the smallest market segments in the entire metal mining industry. Indeed, in the USA and Canada there are only two significant primary silver and silver co – product producers: Coeur d'Alene Mines and Hecla Mining Corporation, which together supply the "princely" total of 4% of world silver demand or 24 M oz. If one factors in all significant co – product and primary silver producers worldwide, the world mine production figure for these deposits amounts to less than 10% of world supply. This is an amazingly tight market geared to only incremental increases in silver demand. Should investment demand for the metal suddenly increase, the mining industry could not respond. Banks, Metals Traders or Investment Houses have virtually no silver stocks to draw down. Therefore, their influence on the market could be considered insignificant. In short, the silver supply side has virtually no scope to adapt to any significant change in demand. Besides, it would take a price of over US20 per fine ounce to encourage people to sell, "en masse", the family silverware. Even then a "fire sale" of silverware would not necessarily bring down the silver price.
Low silver prices for much of the last 40 years, apart from the short lived Bunker – Hunt market spike around 1979 – 1980, when an ill-advised effort was made to cartelize the silver market, have meant that mining companies have had virtually no incentive to look for "standalone", or primary, or significant co – product silver resources. Hence, very few new resources of silver have been found, apart from those discovered as result of base metal, gold or tin exploration. Whilst huge potential exists to discover substantial primary silver resources, for the longer term, from the following deposit types: epithermal vein; porphyry copper – molybdenum related stockwork vein; and, vein array systems worldwide, the mining industry will require a sustained silver price, probably in the range from US$9 to US$12 or higher, to explore for, and develop, such systems. Right now the mining companies are very wary of silver's prospects, given its past 30 year history, and remain to be convinced of the metals long term prospects, given its "Cinderella" image within the precious metals market.
Should a major economic downturn affect the base metal markets, due, say, to a collapse of the Stock Markets, Bond Markets and Real Estate Markets, with the broader implications of bursting the Chinese – Asian market bubble simultaneously, then several of the base metal miners may cut back on production, or be forced to high grade their deposits at lower production rates. Faced with overvalued stocks, bonds and real estate, and a collapsing US dollar, rising oil prices (towards US$ 50 – 55 by end 2004), accelerating inflation, and, finally (as the Fed's hand is forced), accelerating interest rates, the World's No 1 economy, the USA, looks to be headed for the "Economic Train Wreck of All Time". This will bring the Global Economy, including China, to its knees. Under this scenario, investment demand for all the precious metals could quite simply take off to levels hitherto thought improbable.
Given the foregoing scenario, silver producers would have absolutely no chance of meeting such demand, unless the silver price became high enough to encourage the base metal miners to expand their operations on the basis of earning large silver credits. The primary silver producers are too small and limited in number to make anything other than a marginal impact on the market. It takes years to find, evaluate and develop a new mine of any size. Obviously, small vein mining operations, such as those in the Idaho silver belt, or at Slocan in British Columbia, could be rapidly brought on stream. However, their contribution to supply would be insignificant. Should the above catastrophic scenario not eventuate, the fundamentals for silver are the strongest they have been for 25 years, and, therefore, silver is headed higher come what may.
Finally, it is worth noting that the worldwide silver market currently (calendar year 2003) consumes 880 million ounces of the metal annually, of which 714 Moz can be considered a real supply minus recycled photographic waste. Given an average silver price of US$ 5.25 per fine ounce, this values the world silver market at a mere US$ 3.8 billion or significantly less than 10% of the present market capitalization of PEPSICO, and equal to approximately 10% of the worldwide gold market, which in turn is still less than 50% of the market capitalization of MICROSOFT Corporation.
Introduction
Silver has for much of the last Century been the "Cinderella" of the precious metals sector; i.e., very much the poor relation of its more glamorous, and less geochemically abundant, companions gold and the platinum group elements. Silver has been a monetary metal for nearly as long as gold; since first evidence of its active smelting, dated at around 3,000 BC, was discovered by archaeologists in the Eastern Mediterranean and Asia Minor. Indeed, there were periods in European and Chinese history where silver was more highly valued than gold. This merely reflected the supply and demand equation existing at that time, and did not accurately represent the geologic abundance of these metals, as subsequent events have proven.
In the early and middle years of the 20th Century silver, and latterly gold, have been demonetarized by the International Banking Cartel (controlled by the huge European Banking Houses such as the Rothschilds, Warburg's, Baring's, Hambro's, and, more recently, powerful US based banks such as J P Morgan, Kuhn Loeb, Salomons, Bear Stearn's, Goldman Sachs, Shearson Lehmann and Rockefeller's Chase Manhattan – Citibank) in favour of increasingly unrestrained paper issuance (FIAT), and, in the "Computer Age", digital money. During the latter part of the 20th Century; i.e., since 1982, unrestrained lending and monetary expansion have accelerated at a frenetic rate. The USA's Federal Reserve Chairman, Sir Alan Greenspan, will undoubtedly go down in history as the most profligate (and seemingly reckless) monetary expansionists of all time. His legacy can only bode well for the precious metals.
The Supply and Demand Equation
The key markets for silver are Industrial Applications (40%); Jewelry and silverware (31%); Photographic film (22%); and Coins and Medals (4%). The greatest immediate threat to the silver market comes in the area of photographic film, where digital photography has replaced conventional photography in developed countries such as the USA, Canada, Europe, Japan and Australia. However, as noted in the Investor summary, the take off of digital photography is limited by the fact that overall costs include a higher unit cost when compared to conventional equivalents due to the need for re – chargeable batteries, printers, photographic paper, computers to optimize picture production, etc. The mass market, developing in Asia, in particular, will largely opt for conventional photography based on overall cost. Digital photography will remain the preserve of the wealthy and professional, who can utilize to the full the technical advantages afforded by digital photography in their work. To date, the growth of digital photography has been largely confined to the select segments within developed nations: the USA, Canada, Australia, Europe, and Japan.
The photographic market makes a very modest demand on the silver market, because most (85%) of the silver used in this market is recycled as scrap. In this respect, this segment of the market is almost "a zero sum game", and, therefore, has far less impact on the supply and demand equation than is currently thought.
During the 20th Century, whilst silver was being demonetarized, new markets developed which more than counterbalanced the decline in coinage fabrication. Silver has unusual physical and chemical properties, including its high malleability and ductility, and more importantly, silver displays the highest electrical and thermal conductivity of any element known, and possesses an electrically low contact resistance making it a very useful metal in some electrical equipment. Furthermore, silver displays an ability to endure extreme temperature ranges. Silver's best-known characteristic is its sensitivity to and very high reflectance of light, apparent in camera film and freshly minted coinage and polished silverware. Given these important characteristics, it will come as no surprise that silver has become increasingly important in "Hi Tech" applications and is now an "industrial metal" rather than a precious metal in the strictest sense.
The "Hi Tech" applications of silver in industrial markets are "niche markets", in which silvers’ unique physical and chemical properties mean that the threat of substitution by cheaper materials is highly unlikely, if not scientifically impossible, given present technology. These markets are very likely to be growth areas, both in developed and developing countries, because of their self-evident value in society in very significant applications. For an overview of these uses the reader is referred to the website of the Silver Institute.
Coinage, jewelry and silverware are potential growth areas, in particular in the Asian markets, again due to silver's great beauty as a polished metal, and in its function as the poor man's precious metal for those who cannot afford to buy gold. As FIAT currencies meet their "Gotterdammerung", people will increasingly turn to real value, as all other asset classes go into serious decline. The limitation here lies in coinage and investment ingot fabrication, which comprises a mere 4% of the market, and is confined to Mexico, the USA, Canada and Australia. This market cannot be suddenly expanded to meet increased demand, should the need arise. Besides, silver supply is largely “spoken for” by the Industrial and Photographic markets in the form of set contracts.
Originally, silver was mined largely as native silver from supergene enriched, high grade, vein deposits. In these deposits already high grade silver sulfosalts are weathered and oxidized, near the present land surface, to reduce the silver to its native form and upgrade the existing deposit to "bonanza grades", of the order of thousands of grams per ton. Such deposits were the target of medieval mining activities throughout Central and South America, Europe and Asia. By the 17th and 18th Centuries, the majority of such deposits had been worked out, in these areas. This mining activity made silver the precious metal of the day owing to its relative abundance, when gold was relatively scarce. However, from the 1850's onwards successively larger gold districts were discovered: as placer gold in California and New South Wales; and as placer, deep lead and bedrock vein deposit gold mines in Victoria, Australia; the placer deposits of the Klondike in Canada, and, during the 1890's, the mighty Proterozoic (fossil) placer gold deposits of South Africa (more than 110,000 tons of gold metal) and the bedrock, vein array, deposits of goldfields of Western Australia, in particularly "the Golden Mile" at Kalgoorlie. Mining activities at these locations enabled countries to move towards a gold and silver standard as a basis for money.
During the early years of the 20th Century significant deposits of lead – zinc were discovered in the Central USA in the Ozark Hills and Tri – State districts, and in New South Wales, Australia, at Broken Hill. These mines all produced significant by product silver, largely from argentiferous lead ore, galena, at a time when supply of silver from primary resources was diminishing. This trend gathered pace in the immediate post WW2 era during "the golden days" of mineral exploration in the late 1950's to early 1970's when significant, and often large resources of carbonate hosted lead – zinc deposits in the USA and Canada (at Pine Point), and in Queensland, Australia, the giant Mt Isa and satellite Hilton deposits, were discovered. Furthermore, the huge Sullivan lead – zinc silver deposit was discovered in British Columbia. Progressively, the main source of silver supply shifted from primary silver producing vein systems to become a by product of large base metal mining operations. Increasingly significant quantities of silver were also being produced as a by product of the huge porphyry copper and molybdenum mining operations in the southwest USA, British Columbia, and South America, as well as from the expanding number of primary gold mining operations.
Supply of silver for calendar year 2003 equalled demand at 880 million ounces, and was comprised as follows in order of significance: Mine Production (68%); Old Silver Scrap (22%); Net Government Sales (9%) and Net Disinvestment (1%). There was no Producer Hedging in 2003 for obvious economic reasons.....why hedge when the only way for the silver market is up? It could hardly go much lower than it has been. However, as prices of silver rise, one may expect silver companies to hedge forward sales, in coming years, to lock in profits. Although, having said this, the USA's most famous primary silver producer, the great Coeur D'Alene Mines, remains proudly a "non-hedging company".
World Mine Supply
During 2003, the worlds’ 10 largest silver producing nations were as follows in order of production: Mexico, 93.8 Moz. (million ounces); Peru, 89.2 Moz.; Australia, 60.2 Moz; China, 46.8 Moz.; Poland, 44.3 Moz.; Chile, 41.6 Moz.; United States, 41.5 Moz.; Canada, 41.0 Moz.; Russia, 33.8 Moz.; and Kazakhstan, 22.9 Moz.
The worlds’ 10 largest silver miners are as follows: Industrias Penoles (Mexico) 48.4 Moz. (by product silver from lead – zinc operations at Fresnillo); KGHM Polska Miedz (Poland) 43.7 Moz (by product silver from copper operations); BHP Minerals Ltd. (Australia) 42.7 Moz. (from Cannington bonanza silver – lead - zinc mine); Kazakhmys (Kazakhstan) 19.5 Moz. (with gold mining); Grupo Mexico (Mexico) 19.0 Moz. (some primary silver operation as well as by product lead – zinc); Rio Tinto PLC (UK) 18.3 (by product of porphyry copper and lead – zinc mining operations worldwide) Moz.; Barrick Gold Inc.(Canada) 17.0 Moz. (by product of gold mining operations); Coeur d'Alene Mines (USA) 14.2 Moz (primary silver producer).; Polymetal (Russia) 13.3 Moz. (by product of lead – zinc and tin mining); and Xstrata (Mount Isa Mines) Australia 12.0 Moz (by product of lead – zinc silver mines at Mt Isa).
Surprisingly, Newmont Mining Ltd, a major worldwide gold producer, is only the worlds’ 13th largest silver producer (9.9 Moz), largely from its operations in the Carlin mining camp in Nevada, where silver is produced as a by-product of gold mining operations. Newmont has no major primary silver operations. Hecla Mining Company, a substantial primary silver producer, is the world's 15th largest producer with 9.8 Moz. This company operates substantial primary silver operations as well as having a significant and developing gold portfolio.
In terms of mine production, the following is a breakdown of where current mine production is sourced:
Ø Lead – Zinc deposits (mostly Mexico, epithermal lead – zinc - silver deposits, and Cannington, Mid Proterozoic (geologic age), lead – zinc – silver, sedimentary exhalative deposits, and Chinese deposits, which are largely marginal lead – zinc – silver operations) 31%;
Ø Copper deposits (primarily the Kupferschiefer of Poland and porphyry copper mines) 25%;
Ø Gold deposits (in particular Carlin type and Epithermal deposits) 14%
The silver market is dominated by a few large deposits such as those in Fresnillo, which comprise a part of the 800 km long Mexican lead – zinc – silver belt, and the large Polish sedimentary (copper shale or "Kupferschiefer" deposits), or the Mid Proterozoic age, bonanza, lead – zinc – silver deposit at Cannington, in the world famous Mount Isa belt in Queensland, Australia. During calendar year 2003, Cannington mined ore at an average grade of 544 grams per tonne silver, 11.9% lead and 4.5% zinc, and is, at present metal prices, a bonanza deposit. The mine produces 34.85 million ounces of silver per annum from argentiferous galena and friebergite ore. Another major silver producer, for more than a century, has been the giant Potosi mining camp in Bolivia.
With the exception of Cannington and Potosi, these companies are driven by base metal prices, and not silver prices, and so they are unlikely to expand production unless the silver price rises to levels where silver credits comprise a significant proportion of overall profits. Therefore, as far as silver is concerned, they are "demand inelastic". However, these companies have considerable exploration potential on their own doorsteps, but are in no rush to develop this known potential. They are market driven by their primary products, the base metals.
In terms of the capability to expand production at higher silver prices, one has to look to the primary silver companies, such as Couer D'Alene Mines, Hecla Mining Corporation and the like. These companies are highly experienced in sourcing and defining epithermal, stockwork systems and vein – tetrahedrite type silver deposits, in the USA, Canada and Central and South America. There is tremendous scope for exploration, throughout the Canadian and US Rocky Mountains, to discover additional primary silver resources.
Low silver prices have meant that "Silver States", such as Idaho, have largely gone unexplored for decades. Sterling Mining, a primary silver exploration company, has acquired the highly productive, and formerly high grade (800 g/t + Ag ) Sunshine Mine in Idaho. This mine extracted silver from a swarm of friebergite and silver sulphosalt bearing veins for a period of approximately 100 years. The Sunshine District has much undiscovered potential, and Sterling will be a company to watch as it gets underway with the re – evaluation of this major silver mining camp.
Klondike Gold is now taking a good hard look at the silver resources of the Slocan lead – zinc – silver camp in BC, and should be able to go rapidly into modest production once silver rises above US$ 6 – 7 / ounce. It has a large choice of potential medium to high-grade lead – zinc – silver veins to explore and possibly develop.
In summary, the key issue in respect of mine supply of silver is that primary silver producers comprise a mere handful of professional mining companies, of which the USA has the two most famous; i.e., Coeur d'Alene Mining and Hecla Mining Corporation. If one factors out the 166 Moz of silver recycled from photographic waste, then of the remainder, which can be considered the real silver supply; i.e., 714 Moz, the two major primary silver producers, Coeur and Hecla, supply less than 4%, or 24 Moz. If the major Cannington deposit is factored in as a co – product silver deposit production stands at only 8.3%, or approximately 60 Moz. This is a startling fact! In other words, the real silver supply side is incredibly heavily skewed by production from the base metal and gold miners. A figure of 20% production from primary, or co – product producers, would be considered a tight market but anything less than 10% implies we are dealing with a situation which could lead to a major price spike should demand suddenly accelerate.
Should the demand for silver accelerate due to increased conventional photographic usage in Asia (China and India) or investment demand for silver rapidly accelerate (more likely), then the market is almost totally inflexible in respect to its ability to respond to any sudden increase in demand. Furthermore, the lead time required to explore, evaluate and develop new mines varies from 4 to 7 years depending on politics, economics, infrastructure, geography and financing. Given silvers’ past lackluster performance, and poor market perception, very few lending institutions would be inclined to finance the development of a substantial primary silver deposit. Therefore, any new production would have to financed internally by those companies sufficiently cashed up or with the collateral and understanding of the market necessary to finance the development. Given these constraints, it seems unlikely that much in the way of new silver production will come onto the market unless the silver price rises to allow companies like Mines Management to develop their large low grade silver resource. Even then, no new silver will come onto the market for 2 to 3 years whilst the project is being constructed.
Should the silver price advance significantly and stay above US$ 8 – 10 per fine ounce, then one may expect existing silver miners and silver exploration juniors to significantly expand their exploration activities throughout the Rocky Mountain and Andes chain from Alaska to Chile. This 7000 km chain has huge epithermal silver potential. Similar potential exists in the mountain chain extending from the Carpathians in Eastern Europe through Turkey and the Caucasus to the Zagros mountains, Tien Shan and Himalayan mountain chain. Additional significant potential occurs in the Ural mountains of Russia associated with Hercynian – Variscan tin – molybdenum granites and epithermal - porphyry systems.
A Very Preliminary Look at Silver Miners of Interest to Investors
For those investors looking to buy shares in a primary silver mining company on home territory; i.e. within the USA, and well managed with an excellent balance sheet, one can do little better than look at HECLA MINING COMPANY. This company was established in 1891, and is Coeur d'Alene's smaller brother, although of equal vintage. Both companies operate in Northern Idaho's silver valley, as well as throughout the Rockies and South America. With a respectable annual production of 9.8 Moz of silver, at the very low cash operating cost of US$ 1.43 / fine ounce, this is a very profitable concern. Furthermore, Hecla has produced 204,000 ounces of gold during calendar year 2003 at a very respectable cash operating cost of US$ 154 / fine ounce. The company has a good balance sheet, is virtually debt free, is very well cashed up and well managed. Furthermore, HECLA has excellent exploration potential. In view of these facts, HECLA will be the subject of the first fundamental report on significant silver producers during August as the writer feels that the company merits serious consideration. For the interim, Investors are referred to HECLA's website for further details.
As an Economic Geologist the writer has to profess to having an emotional soft spot for Coeur d'Alene Mines. This company is one of the USA's mining legends and is North America's most famous silver miner. Coeur will also be the subject of an in-depth fundamental study during August, which will be presented on the writers’ own website to be launched in early August.
NHM
11.07.2004
Note:
The author would like to thank Dr Gary Matthews for his very helpful contribution concerning the photographic market for silver.
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<< <i>I am saying that whenever something is a SLAM DUNK...you are usually wrong.
Exactly how did you determine this to be true? Furthermore what indications do you have that silver is a poor investment? For someone who "doesn't care" you sure have a lot of opinions on the topic. >>
I did NOT make a comment on silver. I DID make a comment on philosophy. This is based on MY experience in investment products. The more that subscribe to your thinking the more likely you are to be wrong.
<< <i>I am not saying that silver wont go higher. I really dont care where it goes.
I am saying that whenever something is a SLAM DUNK...you are usually wrong. >>
Would you care if you were very certain that it was the best investment possiblity around? I would suggest doing a google search on Ted Butler, reading his archives, do your best to tear his arguments apart, including reading those who disagree with him and come to your own conclusions. But if you don't care to do that--of course--to each his own. >>
I devote my time and money to my own investment vehicles. I know them inside and out and they treat me very well. I am not interested -no time- to investing in the actual metal. If the time comes then I will invest in those that mine the metal.
Whenever somebody tells me something is the "BEST INVESTMENT" around, I become very sceptical.
30 years ago they used to say that we were going to run out of oil. Demand and tight supplies would cause the prices to explode. Well, here it is 30 years later and oil prices havent event kept up with inflation.
The more that subscribe to your thinking the more likely you are to be wrong.
Almost no one is subscribing to my theory. This is why silver is trading near historic lows.
Higashiyama, in commodities supply ALWAYS equals demand. The only variable is at what price. Assuming your numbers are correct you are pointing out that while 900 million ounces were required for industry in 2003, only 600 million ounces of new silver was produced while the rest represents a drawdown of existing supplies. Once again assuming that your numbers are correct, this means that at the end of 2003 there was at least 100 million ounces LESS silver available than at the beginning of 2003. (if you only count government sales)
This cannot continue and there are only two possible outcomes. Either new sources of mined silver are found, or demand drops to a sustainable level. After watching the tech stock bubble, the real estate bubble, and the beanie baby bubble, I am convinced that silver will skyrocket once the general public becomes aware of it being "the next big thing". At the point that speculative insanity takes over, industrial consumption will be irrelevant.
"...reality has a well-known liberal bias." -- Stephen Colbert
<< <i>This cannot continue and there are only two possible outcomes. Either new sources of mined silver are found, or demand drops to a sustainable level. After watching the tech stock bubble, the real estate bubble, and the beanie baby bubble, I am convinced that silver will skyrocket once the general public becomes aware of it being "the next big thing". At the point that speculative insanity takes over, industrial consumption will be irrelevant. >>
And at that point, I bail out 100% and laugh all the way to the bank and a well deserved early retirement.
That point will come, make no mistake, the only question is when and how high.
When? Likely sooner than some think. How high? Again, probably higher than some think. To reach the atmospheric levels of 1980 in current 2005 dollars, it would have to excede $125 an ounce. No, I don't think that is realistic at all, but nothing would surprise me once the dam breaks.
"Lenin is certainly right. There is no subtler or more severe means of overturning the existing basis of society(destroy capitalism) than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and it does it in a manner which not one man in a million is able to diagnose." John Marnard Keynes, The Economic Consequences of the Peace, 1920, page 235ff
What are your feelings if gold goes to $385 USD this month?
(just curious)
-g
I listen to your voice like it was music, [ y o u ' r e ] the song I want to know.
I'd give you the world, just because...
Speak to me of loved ones, favorite places and things, loves lost and gained, tears shed for joy and sorrow, of when I see the sparkle in your eye ... and the blackness when the dream dies, of lovers, fools, adventurers and kings while I sip my wine and contemplate the Chi.
<< <i>...When? Likely sooner than some think. How high? Again, probably higher than some think. To reach the atmospheric levels of 1980 in current 2005 dollars, it would have to excede $125 an ounce. No, I don't think that is realistic at all, but nothing would surprise me once the dam breaks. >>
I kind of wonder what would drive the price of silver to $125/toz; I kind of like the idea of trading bulk silver for early US coins.
It's almost like the current proof sets, for the money being offered, they can have them!
-g
I listen to your voice like it was music, [ y o u ' r e ] the song I want to know.
I'd give you the world, just because...
Speak to me of loved ones, favorite places and things, loves lost and gained, tears shed for joy and sorrow, of when I see the sparkle in your eye ... and the blackness when the dream dies, of lovers, fools, adventurers and kings while I sip my wine and contemplate the Chi.
I have been reading this post with great interest, a very nice array of well thought out comments and analitical points of view.
I am a member of PSA, (PCGS sister company) and mostly collect Baseball cards and i was wondering what your views were on how other collectibles besides coins might do over the next 5 to 10 years? I collect with disposable income and for fun above all, But after a while so much its learned that it could be possible to predict certain trends and certain investment opportunities.
Vintage baseball cards ( pre wwII) have performed quite well for the last 10 years or so but unlike gold and silver coins they do not have any intrinsic value.
Also I have not heard much at all about Platinum or how it relates to economic preasures and the supply/demand side of this particular metal. Is it only found in jewlery or does it have any other uses? why does it trade at such high levels? how does the platinum market work?
I also would like to thank you all for making this post such a fantastic source of information and opinions.
"Women should be obscene and not heard. " Groucho Marx
<< <i>What are your feelings if gold goes to $385 USD this month?
(just curious)
-g >>
I'd say it's time to speculate if you can afford it. I really think gold has seen it's bottom and looks to be on the rise for quite some time now. I just picked up another 10 ounces to stash away yesterday at this currently low price.
Still, percentage wise there is no bigger upside with minimal downside than silver.
I don't hold that much gold, so it's not a huge concern for me personally.
"Lenin is certainly right. There is no subtler or more severe means of overturning the existing basis of society(destroy capitalism) than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and it does it in a manner which not one man in a million is able to diagnose." John Marnard Keynes, The Economic Consequences of the Peace, 1920, page 235ff
<< <i>...When? Likely sooner than some think. How high? Again, probably higher than some think. To reach the atmospheric levels of 1980 in current 2005 dollars, it would have to excede $125 an ounce. No, I don't think that is realistic at all, but nothing would surprise me once the dam breaks. >>
I kind of wonder what would drive the price of silver to $125/toz; I kind of like the idea of trading bulk silver for early US coins.
It's almost like the current proof sets, for the money being offered, they can have them!
-g >>
The actual market is so small that it could be manipulated to that point ala the Hunt brothers. However, TPTB aren't going to let that happen again. Just ask Warren Buffet.
I suppose some unforeseen technological breakthrough could do it. Who knew that teleporters and faster than light speed simply required a large mixture of silver and a bit of element 115? Seriously though, such levels are very unlikely under any realistic conditions. Now $20 an ounce isn't so out of the realm of possibility, but it's still quite a ways off. Rampaging inflation could drive everything up as well.
"Lenin is certainly right. There is no subtler or more severe means of overturning the existing basis of society(destroy capitalism) than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and it does it in a manner which not one man in a million is able to diagnose." John Marnard Keynes, The Economic Consequences of the Peace, 1920, page 235ff
Where we all, myself included, missed the trend was with rhodium.
Just check the charts from a year ago to today. Whew! Granted, it's not gold and silver, but what a ride that would have been had you plunked down your life savings there last year.
"Lenin is certainly right. There is no subtler or more severe means of overturning the existing basis of society(destroy capitalism) than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and it does it in a manner which not one man in a million is able to diagnose." John Marnard Keynes, The Economic Consequences of the Peace, 1920, page 235ff
<< <i>What are your feelings if gold goes to $385 USD this month?
(just curious)
-g >>
I'd say it's time to speculate if you can afford it. I really think gold has seen it's bottom and looks to be on the rise for quite some time now. I just picked up another 10 ounces to stash away yesterday at this currently low price.
Still, percentage wise there is no bigger upside with minimal downside than silver.
I don't hold that much gold, so it's not a huge concern for me personally. >>
It seems the price of gold (currently) is quite high (when compared to the last 6 years); wasn't gold ~$265 USD back in '99?
-g
I listen to your voice like it was music, [ y o u ' r e ] the song I want to know.
I'd give you the world, just because...
Speak to me of loved ones, favorite places and things, loves lost and gained, tears shed for joy and sorrow, of when I see the sparkle in your eye ... and the blackness when the dream dies, of lovers, fools, adventurers and kings while I sip my wine and contemplate the Chi.
Iwog -- regarding "Higashiyama, in commodities supply ALWAYS equals demand. The only variable is at what price. Assuming your numbers are correct you are pointing out that while 900 million ounces were required for industry in 2003, only 600 million ounces of new silver was produced while the rest represents a drawdown of existing supplies. Once again assuming that your numbers are correct, this means that at the end of 2003 there was at least 100 million ounces LESS silver available than at the beginning of 2003. (if you only count government sales)"
This is generally consistent with my post (except that some of the 100 million less silver you refer to you could be available for later recycling). In any case, I don't disagree with the concept, only the conclusion. Absent the type of inflation fear that existed in the late 1970s, I don't see that a major run-up in the price of silver is likely.
<< <i>... Now $20 an ounce isn't so out of the realm of possibility, but it's still quite a ways off. Rampaging inflation could drive everything up as well. >>
Would you sell at $20/toz?
I think I would.
It wasn't too long ago, that silver was <$5 US/toz...
-g
I listen to your voice like it was music, [ y o u ' r e ] the song I want to know.
I'd give you the world, just because...
Speak to me of loved ones, favorite places and things, loves lost and gained, tears shed for joy and sorrow, of when I see the sparkle in your eye ... and the blackness when the dream dies, of lovers, fools, adventurers and kings while I sip my wine and contemplate the Chi.
<< <i>People who sell at $20 will be like those who sold their homes in 2001 after making 20% in one year. >>
I try not to be too greedy, 20% in 1 yr return (or in our case, selling at $20 USD 200% return over 2 years) is perfectly fine for me.
Edit: Then again, a 10% return/yr is reasonable to me.
-g
I listen to your voice like it was music, [ y o u ' r e ] the song I want to know.
I'd give you the world, just because...
Speak to me of loved ones, favorite places and things, loves lost and gained, tears shed for joy and sorrow, of when I see the sparkle in your eye ... and the blackness when the dream dies, of lovers, fools, adventurers and kings while I sip my wine and contemplate the Chi.
<< <i>People who sell at $20 will be like those who sold their homes in 2001 after making 20% in one year. >>
If I sold all my holdings at $20, it would be closer to 350% to 400% in 30 months. I don't think I'll have that opportunity anytime soon, though.
Actually, I am quite content to flip bullion at 5% - 8% on the high side and I try to do it all the time. That doesn't sound like much but if you do it often, it adds up over the year. I pay enough taxes on it to know quite well by now.
"Lenin is certainly right. There is no subtler or more severe means of overturning the existing basis of society(destroy capitalism) than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and it does it in a manner which not one man in a million is able to diagnose." John Marnard Keynes, The Economic Consequences of the Peace, 1920, page 235ff
Platinum is also a pretty special metal with many important properties but it is much easier to replace in most of its applications. It is far scarcer than silver or gold as are most of the metals it can be replaced by. It has an extraordinarily high melting point and this makes it necessary in a few applications.
There could be a lot more silver available than is usually reported but it is being con- sumed and it is not being heavily set aside as investment. Eventually something will have to change or something will give. While it's true that this could be far in the fu- ture, I too, am betting that at some point speculative demand will push it far higher before something changes or gives. This sort of demand can be huge multiples of the industrial demand which is destroying it at an ever increasing rate. The fact that indus- trial demand is relatively inflexible to price will assure that even after the price were to increase that the supply will continue to decrease. Since most markets operate far more on pschology than on fundamentals this is a recipe for an extremely explosive situation.
Inflation has affected all paper assets as well in the past 5 years. That means your stocks earning "X" percent have lost 30% as well due the fall of the US dollar. When discussing the 5-10 year returns on PM's don't fail to include that over the past 10 years or so stocks have returned very little also. Gold hit bottom in 2001 at $265. The US hit peak oil production in 1970 and it has been falling ever since. There are analysts out there now that think Saudi Arabia oil is at or near its peak also. With increasing demand from Asia, and oil supplies fixed or falling, that would imply rising oil prices for quite some time.
It takes typically 5 years to bring a mine to fruition. And resurrecting older mines maybe at least a few years. The infrastructure of the mining industry has been decimated in the 1990's due to the "carry" trades and miners taking "short" positions against there own companies. Even at $20 new mine production will have essentially little effect on stalling silver prices. That so-called braking mechanism is nearly broken.
The French passing on the EU constitution is longer term bullish for gold. However in the short term a drop in the Euro is gold negative. Call it spin doctoring for now. The dollar is certainly not exploding upwards. Actually I'm very surprised that gold is still well above $400 with the rally the US dollar index has achieved in the past few months. If gold were that weak we should be at $385 by now!
The majority on this forum feel that silver has no future. I guess if you think the majority is usually wrong, this speaks volumes.
RR, correct me if I'm wrong, but isn't the majority of silver production actually the byproduct of other mining? From what I understand, there are very few silver mines...most silver comes from the mining of other metals. If this is true, then that's even more of an argument in favor of silver.
I just hope silver stays "cheap" for another five years or so since right now I'm po'. I am pouring all my money into an investment that is guaranteed to have strong returns--my education.
I heard they were making a French version of Medal of Honor. I wonder how many hotkeys it'll have for "surrender."
Questions to ponder by anti-gold standard proponents:
If the gold standard was the cause of bank runs and constant busts in the 1800's why didn't it get changed? Why the great mistrust in paper currencies? If our govt was founded on paper currency in the 1700's would the nation be where it is today? Imagine, 200+ years of constant inflation at 3% per year. I would think that today we'd be using wheelbarrows of currency to buy groceries if that was allowed to happen. If Keynes was alive in 1787 this is what we would have today. Did the fact that the US did not own the world's reserve currency in the 1800's have some bearing on the booms and bust listed above? We had to be responsible for our own currency. No one else was there to support it. The rest of the world was not our playground yet. Blaming gold for all the other associated problems of the 19th century seems very simplistic.
The US has been OFF the gold standard for a MEASLY 34 years. Hence, all the comparisons of today vs the first 130 years of our history is an absurd comparison. How do you compare a mere 34 years of current history and a world that is still tied down to our currency to more than a century of history with a much less sophisticated economy and financial system? Let's just say that we haven't even touched on the outcomes of what being unbacked by gold means. The $500 Trillion world derivative market didn't even exist in 1980. What little existed in futures may have been a few trillion at best. It's 50 or more times larger today. What effect will this have on today's markets when things get stretched to the limit? No one knows. We don't have 100 years of no-gold or no-derivative history. This is an infant (no-gold) economy in that sense that has seen only 1 business cycle. The first half was stiffled in 1980-1982 by applying interest rate brakes. The next half cycle ran over 20 years on easy credit, borrowing and printing money. Anyone remember Nixon and his Whip Inflation Now campaign (WIN) in the early 1970's? The inflation rates they were dealing with were less than what we have today! We think nothing of them now. And the index they used back then was far less forgiving. Inflation indexes were once tied to the money supply. No longer. The Index we use today is far more tweaked and doesn't even include a reference to increasing monetary supply...which is exactly what inflation really means.
When did home prices start to go crazy in price? 1800's? NO. 1950's? NO. 1960's? NO. 1970's? Bingo. Any relation to removing the gold standard? Hmmm? Let's not forget as Bill Bonner was quoted earlier in this thread that we have yet to experience the normal down cycle associated with the up cycle of 1982-2001. This is not "economic Jihad" but merely normal market cycling to erase excesses. But since this excess has only been extended further, the normal market down cycle may end up being anything but "normal."
correct me if I'm wrong, but isn't the majority of silver production actually the byproduct of other mining? From what I understand, there are very few silver mines...most silver comes from the mining of other metals. If this is true, then that's even more of an argument in favor of silver.
Yes. The mines I was referring to was more of the gold variety. But I would assume that there are dedicated silver mines out there and adding another one to the list would take years to do. I've never seen a reliable industry reference anywhere that states that gold or silver mines could be built in 1-2 years. The only place I keep seeing that is here on the forum.
1950's? NO. 1960's? NO. 1970's? Bingo. Any relation to removing the gold standard? Hmmm
One could make the arguement that home prices rose in the 70's as a result of inflation and demographic demand. The first baby boomers were turning 30 in 1976. This is the age at which home ownership first takes place.
I do think that precious metals have a place in anyone's investment portfolio. I just get nervous when I hear people say it is the lock, homerun, blockbuster, investment of the century. That it is impossible to lose money in metals and if you dont load yourself to the gills then you are a fool.
<< <i>You left out the part about knowing a big secret that the rest of the market doesn't know >>
Too funny. One person says silver bulls are wrong because "everyone thinks silver is going to go up" and when everyone thinks something it never happens. Another person says that because everyone else disagrees with us, that makes us wrong. Go figure.
The Mississippi River will eventually break through its levee and bury New Orleans under tons of water, in the opinion of many engineers and scientists. Of course, it could happen a thousand years from now. Or tomorrow.
I heard they were making a French version of Medal of Honor. I wonder how many hotkeys it'll have for "surrender."
<< <i>You left out the part about knowing a big secret that the rest of the market doesn't know >>
Too funny. One person says silver bulls are wrong because "everyone thinks silver is going to go up" and when everyone thinks something it never happens. Another person says that because everyone else disagrees with us, that makes us wrong. Go figure.
The Mississippi River will eventually break through its levee and bury New Orleans under tons of water, in the opinion of many engineers and scientists. Of course, it could happen a thousand years from now. Or tomorrow. >>
Those dang Cajuns have no sense of humor. It's entirely possible they'll just keep building the levees higher indefinitely.
I do think that precious metals have a place in anyone's investment portfolio. I just get nervous when I hear people say it is the lock, homerun, blockbuster, investment of the century. That it is impossible to lose money in metals and if you dont load yourself to the gills then you are a fool.
Nothing is assured. But you have to put your bets somewhere on the table and go with them. Today's hyperactive and inflated economy requires a bet or the end result is you will get buried by inflation. The only thing bad about this is that some of the choices are worse than doing nothing. My brother has added 2 houses to his portfolio and that's his bet. Everything is riding on his 3 homes continuing to appreciate. Deadhorse is counting on silver and gold. TDN likes his coins (I like 'em too!). The 1950's are gone when you didn't have to count on your house for economic survival and "wealth building." That's what jobs and real investments were for. Houses should depreciate as they wear out.
It's possible to lose money in everything out there today....and big time to boot. And with no risk being taken, you lose 3-6% to inflation. You have to pick a "path" (inflation, deflation, stagflation, depression, hyperinflation, muddle through economy, peaches and cream, WW III, Shangri-la, or a combo) and then select your investment mix accordingly. This is what it really means to have a fiat money economy.
Gentleman.....place your bets in the 21st century Republocratic Lottery. There are no truly safe choices. Monty Hall will be your guide with Alan Greenspan filling in for Carol Merrill: Door #1, Door #2 or Door #3??
RR - regarding "You have to pick a "path" (inflation, deflation, stagflation, depression, hyperinflation, muddle through economy, peaches and cream, WW III, Shangri-la, or a combo) and then select your investment mix accordingly."
I would strongly endorse this statement, with a couple of additional comments. As you suggest, it is hard to develop an investment strategy without a context. A related thought -- it is probably impossible to development an investment strategy that excels in all situations! I think it is possible, however, to develop a strategy that does reasonably well in several alternative scenarios, and mitigates risk in most scenarios.
Also, it is important to develop contingency plans -- at some point it may be clear that the scenario envisioned is not evolving. Many people, including me, have trouble making this adjustment.
In development my own "strategy" (if it can be deemed such ), I throw out depression and WWIII, and then try to develop a strategy that works tolerably in both inflation and deflation scenarios, a kind of straddle. Any such straddle, of course, gives away some up side in the peaches and cream scenario, but may survive both hyperinflation and depression.
<< <i>For all those who say there isn't enough silver, I just don't see it in the numbers, which are roughly as follows for 2003 (in millions of ounces):
No one has provided a convincing argument that the mines are nearly depleted, and that this level of production cannot be maintained for the foreseeable future. Government stockpiles may be depleted, but scrap recovery has been fairly consistent for the past decade. Assuming there is a 10 - 15 % gap between demand and supply, this would surely exert upward pressure, but not so much that silver prices will rocket upwards. Any increase will ultimately be mitigated by increasing mine activity, increasing recovery of scrap, and decreased demand. Prices may go up, but I would agree with cohodk -- the future direction in the price of silver is far from clear. >>
Coinfool: I’m not sure where you got your chart from, and I’m not saying that it isn’t valid, it’s just that we all know that those who make charts can keep critical elements out, especially if they have something to protect or gain from certain facts remaining hidden. The fact of the matter is that we have been running an approximate 200 million ounce per year deficit for a few decades now. Furthermore, the world has consumed 95% of total known inventory of silver in over the past 50 years alone. It took thousands of years to build up that inventory and it was used up in a snap. The implications are staggering. The structural deficit is massive. You need to look deeper into the supply demand issue, from different angles. Different sources. Taking into consideration conflicts of interest with the dealers especially who have been manipulating the market for years. I’ve seen many different charts saying lots of different things. I try to find the most neutral.
(From Jim Cook - I've asked Ted Butler to explain, in the clearest terms possible, why he feels silver is manipulated. I know he has been making the case for years, but I'm requesting he prove the silver manipulation in terms that anyone can understand. Investment Rarities does not necessarily endorse these views, which may or may not prove to be correct.) I was a bit put off at first by Jim Cook's repeated requests to more fully explain the manipulation of silver. My first reaction was - what do you think I've been doing all these years? But then I thought about it and realized that was a very legitimate request. After all, I'm the one making the claim that silver has been manipulated for years, and it is my responsibility to make sure that everyone can understand my claim.
Mr. Cook's request made me think back to that time, more than 30 years ago, when I was hired by Merrill Lynch as a commodity broker trainee (Commodity Training Class #2). I was a college graduate (dean's list), with plenty of business experience (I worked full time and attended school at night), felt like the luckiest guy in the world to have gotten the job and I was determined to succeed. Yet I found myself stumped for weeks on what a short sale was. I just couldn't grasp the concept of how you could sell something you didn't own. I'm not going to dwell on short sales, I’m just trying to acknowledge that a lot of what I write about is complicated stuff - short sales and metals leasing/forward selling. While it is second nature to me now, that's only after many years of study. At first, it was difficult. This is going to be a very simple proof that silver is manipulated. So simple, in fact, that you don't have to have a deep knowledge of silver. All you need is an understanding of simple economic terms. I am going to try to prove silver can't possibly be considered a free market, and by eliminating the possibility that fits any definition of a free market, you will be left with the only alternative - that silver is in a non-free, or manipulated state. I will also point out well-known, current manipulations in other commodities to demonstrate that ongoing manipulations do exist.
Webster's defines a free market as an economic market operating with free competition. It’s the foundation for capitalism, and the opposite of a communist or a controlled market system. Free markets depend on open competition and are governed by the law of supply and demand. All products and services, except those reserved for the government or monopolies, are subject to the law of supply and demand.
The law of supply and demand is a three-legged stool - supply, demand and price. The interplay between these three components is the basis of the free market system. Price is usually the most important component. The price component controls and balances the other two - supply and demand. It is of paramount importance that the price component never be tampered with. If the price is tampered with, it will automatically mess up supply and demand, without exception. There has never been a case of price controls, for instance, that didn’t result in either shortage or oversupply. That is why the whole body of U.S. commercial law prohibits artificial price controls.
School children are expected to learn how the law and supply operates. If there is more demand than supply for an item, the price must rise in order to increase production and decrease consumption. If there is more supply than demand, the price must fall in order to increase consumption and decrease supply. For instance, if General Motors experiences unexpected demand for a hot new vehicle, and can't produce it fast enough to satisfy that demand, the price won’t be reduced. If General Motors actually lowered the price of a hot new vehicle in short supply, it would increase demand instead of cooling it off. GM only lowers prices or offers rebates when it has excess inventory it wants to sell, not when it can't keep up with demand. If sugar producers around the world grow a record crop which is much more than can be consumed, you wouldn’t expect the price to rise. Under the law of supply and demand price alone balances all surpluses and deficits.
The key point is that the price is the regulator, or governor, as to how much of a commodity gets produced and consumed. The price, in this case, is the "invisible hand" of famed economist Adam Smith. Too high a price will always produce, in time, too much supply and not enough demand. Too low of a price eventually guarantees a shortage. Generally, it is perfectly normal, in a free market, for prices to swing alternatively between too high and too low as demand adjusts to supply and vice-versa. It is these regularly-occurring price swings that establish the normal cyclical nature of markets. The problem arises when dominant market participants seek to control the normal cyclical price swings to their advantage. This happens more often than you might imagine.
It is possible to intentionally influence the price component by manipulating supply or demand. For almost 30 years, the Organization of Petroleum Exporting Countries (OPEC), has exerted great influence on the price of oil by intentionally controlling, or attempting to control, the supply of oil at the margin. That they have done this openly for three decades has dulled us to this obvious ongoing manipulation. For more than 50 years, likewise, the Central Selling Organization (CSO) of the DeBeers' conglomerate has influenced the price of diamonds, by intentionally controlling the supply of raw diamonds entering the market. Both organizations are cartels that restrict open competition in order to establish a higher price than would otherwise prevail. As such, they are illegal under U.S. antitrust law. They continue to exist as they are outside effective U.S. jurisdiction. For them, the demand component is strong enough to permit the manipulation to continue. Clearly, these two examples indicate that controlling the supply of a commodity can effectively influence the price.
Why can’t silver be considered to be in a free market? For one thing, there have been no normal cyclical price swings for more than a decade. The price has basically been flat for 15 years. Remember, it is normal for prices to move between "too high" and "too low" as supply and demand react between oversupply and excessive demand. This is especially true in a commodity that fits the dual role of industrial commodity and precious metals investment. It would be reasonable to expect more, not less, price volatility due to the emotional nature of a speculative investment. It is not normal for the silver price to be flat, particularly given the fact that prior to the start of the modern silver manipulation in 1983, silver had the most price volatility of any commodity. From the most volatile to least volatile - why? This past decade of unprecedented lack of price volatility occurred precisely at the same time that the law of supply and demand would dictate the exact opposite. For the past 14 consecutive years, silver has remained in a documented supply deficit, verified by a reduction in world inventories of more than 1.5 billion ounces. In most commodities, a deficit of one year or less is enough to send the price skyward, as required by the law of supply and demand. In a commodity deficit, the price must rise to encourage increased production and to discourage, or ration, demand.
There is no legitimate free market explanation for a deficit lasting 14 consecutive years amid flat and low prices. I have asked this question of the CFTC, the COMEX, analysts, the Silver Managers and the world. No legitimate answer has emerged. No legitimate answer will emerge. That's because the only possible answer is manipulation. It is this lack of a legitimate, free market answer to a very simple and obvious question which should prove, to a reasonable person, that either there is something wrong with the basic definition of the law of supply and demand, or that silver is not in a free market.
The key to understanding how the silver market is manipulated is to look at how OPEC and DeBeers manipulate the oil and diamond markets. The common denominator of all three manipulations is that it is the supply component that is interfered with, in order to effect an influence on the price component. The difference, however, is that while the OPEC and DeBeers cartels artificially restrain supply in order to intentionally increase the price of oil and diamonds, the Silver Managers' cartel artificially increases the supply in order to intentionally depress the price of silver.
How does the Silver Managers' cartel artificially increase the supply of silver? By leasing physical silver and by unlimited short selling on the COMEX. OPEC and DeBeers rely on only one device, withholding supplies. The Silver Managers have two manipulative devices at their disposal. Whenever additional physical inventory supply is needed to supplement the deficit between current production and consumption (which is pretty much all the time), the Silver Managers call on the central bank of the moment (currently Red China) for non-free market silver. I say non-free market, because no price component is involved in the physical silver transfer through leasing, only false promises of return to the bureaucrats involved. That enables the Silver Managers to artificially increase the supply component at will. I know this metals leasing business is difficult to grasp, but because it's so central to the silver manipulation, it is important to try to understand just what is involved. The complexity of this concept is what has enabled the manipulation to continue for so long. The Silver Managers have called on various central banks over the past 15+ years to take real silver from those central banks to dump on the market, whenever the Silver Managers have needed to artificially add to the supply component in order to intentionally keep the price depressed. This is at the heart of how they control the silver market. These are backroom deals that nobody is willing to discuss. This is completely against every tenet of the free market and the law of supply and demand. The central banks don't even get paid for giving the Silver Managers the silver, they just get some silly interest rate of less than 1% a year. Why would the central banks ever participate in such a stupid scheme? I know in my bones the answer to that question. It’s possible the Silver Managers are giving financial considerations to the central bank official responsible for allowing the silver to leave the vaults of the central bank. It's just a question of whether it’s a promise of a good job when the official leaves the central bank, or if it's cash or gifts. It has to be something like that because no one could be so stupid to give away their silver for free. For good measure, the Silver Managers also have at their disposal the ability to sell short, whenever necessary, COMEX contracts in unlimited quantities, further capping any price increase and enabling them to profit at the expense of the tech funds and other speculators. This is an added bonus (and proof of manipulation) that OPEC and DeBeers only wish they had at their disposal, but is bestowed solely upon the Silver Managers by the CFTC and the COMEX. They have done it over and over again. At the last price peak in September 900 million ounces were sold short on the COMEX. Simply through the brute size of their financial assets, a small group of rich dealers can dwarf all other players and hold down the price.
The silver manipulation is being run clearly under the jurisdiction of domestic regulatory agencies. The OPEC and DeBeers cartels are beyond the effective reach of U.S. law enforcement. There's not much the U.S. can do about these two foreign cartels. However, by charging more for oil OPEC is doing us a favor. It preserves oil for future generations by reducing demand. It is precisely the opposite in silver, where thanks to the Silver Managers' downward price manipulation, we are consuming much more silver than we would if the market were free. Lower prices stimulate demand, and that's exactly what is happening. Not only do we consume all current production (mining plus recycling) we continue to voraciously consume existing inventory, year after year. This is the biggest harm the Silver Managers are doing to all of us. By interfering with the law of supply and demand, the world is eating up silver much faster than if consumption was restrained by a true free market.
Invariably, the question of motivation comes up. With OPEC and DeBeers, the motivation is obvious. They are trying to extract every extra dollar that they can for their products. That's understandable and normal. What about the Silver Managers' cartel, what's their motivation? Not surprisingly, it's also money. It's just that the money comes to the Silver Mangers in a different form than selling production at a higher price. In fact, it doesn't come from selling production at all, since the Silver Mangers have no production, only financial shenanigans. The Silver Managers inflate silver supplies, via leasing, in order to profit from their resultant control of the price. The profits come from COMEX futures and options trading. When you have control of a market, by overriding the law of supply and demand, and you can buy and sell paper contracts in unlimited quantities, you know what the price will be today, tomorrow, next week, and next year. The Silver Managers have rigged every futures price move and options expiration for 15 years or more. They can afford to make nothing on the leasing game, because they have made many billions of dollars on the COMEX. This is their motive and payoff for their manipulation of the silver market.
But making big money on the floor of the COMEX is not the only motivation for the Silver Managers to continue the manipulation. In fact, it may not even be the prime motivation any longer. I think a new, more pressing motivation to continue the long term silver manipulation has emerged. What could possibly be more of a motivation than the prospect of continuing to rake in billions of dollars in a rigged market? Only one thing, in my opinion - the prospect of going to jail.
The minute this silver manipulation ends, as it must, it will become immediately obvious to the whole world that there was something radically wrong in the silver market. Silver will likely explode in price, at some point. There is little doubt that this must be the conclusion for many years of tampering with the law of supply and demand. You don't use up billions of ounces of inventory, accumulated over hundreds, if not thousands of years, and get a ho-hum price reaction when the leasing supply ends. You get a shock to the system. The natural reaction will be to ask why the price has exploded, after laying dormant for years. Too many people have been forewarned of the true nature of the silver market manipulation. Mark my words - when silver does finally blow, there will be government investigations. You can be sure the silver managers know this and will put off terminating the manipulation until the last possible moment. In addition, we are in the midst of an unprecedented wave of financial industry scandal with investigations spearheaded by the institutional crime fighter of New York, Attorney General Eliot Spitzer. This is decidedly not a good time to be an institutional manipulator.
The Silver Managers can stall and postpone the day of reckoning for only so long. That’s because they must keep coming up with a non-free market physical supply (leased silver) to artificially inflate the supply and keep the price down. We know silver inventories are finite. Non-free market silver inventories (leasable inventories) are even more restricted. They will run out with very little warning. The only way the Silver Managers don't go to jail is if they can engineer an unspectacular end to the manipulation, where prices rise orderly to a point where the price rise brings on primary silver mine production increases and discourages silver users from consuming. At this point that seems impossible.”
Peace,
coinfool "You broke the bonds and you loosed the chains; carried the cross of my shame, of my shame--you know I believe it..."
<< <i>Ted Butler always thinks silver is a Buy. He's like a stock broker in 1999.... >>
Rather than take that position, which is one of ignorance (not meaning insult, but rather that you just don't seem to be that familiar with his writing), why not take his position and refute it. You might be pleasantly surprized at your conclusions and the implicationsl The fact of the matter is that we have been running an approximate 200 million ounce per year deficit for a few decades now. Furthermore, the world has consumed 95% of total known inventory of silver in over the past 50 years alone. It took thousands of years to build up that inventory and it was used up in a snap. The implications are staggering. The structural deficit is massive
Peace,
coinfool "You broke the bonds and you loosed the chains; carried the cross of my shame, of my shame--you know I believe it..."
"Dallas Federal Reserve Bank President Richard Fisher, using a baseball analogy, said the Fed is in its 8th inning, and will raise rates one more time at its next meeting. A standard baseball game has 9 innings. Then, the Fed may or may not raise rates further, “go into overtime.”
Fisher implies that the Fed is pretty much done raising rates. Fisher is new to his post and may have talked more broadly than he was supposed to; however, his statement was rehearsed, and the markets take it seriously.
We have long argued that the U.S. economy is too leveraged to allow the Fed to aggressively raise rates to curb the housing bubble and inflation that is creeping through the supply chain. Any forceful action would cause the housing bubble to collapse and throw the economy into a severe recession."
<< <i>I'm sure that this was stated before, but as a reminder...there is more silver held in paper notes than there is actual metal to cover those notes. Is there another business where you can sell the same thing twice-never deliver it, and get away with it while the government turns a blind eye? >>
And the beauty is that they charge you storage fees for silver that doesn't exist ina storage facility that doesn't exist--how awefully nice of them.
Peace,
coinfool "You broke the bonds and you loosed the chains; carried the cross of my shame, of my shame--you know I believe it..."
Sorry for the long article. I offered this diatribe but attached the article because I thougt it to be well written and will at least arm most of those that read this article with a minimum of silver knowledge. Personally, I have owned a fair amount from time to time and sold it from time to time over the course of 25 years. I really do wonder how many people out there are still holding $8 silver, just waiting, begging, wishing.
I am not a silver bug anymore but here is MHO.
1. "World supplies are almost gone and demand is still rising" Nah, world supplies are not gone. There are huge silver deposits that run from Alaska to Peru (go ahead and read the article below) and all over the world there are huge known deposits. Most people have no idea how many silver mines across the world will crank up as soon as it becomes more valuable to sell. Don't forget...It's about the money!. Yes, it will take two or three years to get it into consumers/investors hands (physical holding) but if you want to see some silver become suddenly available, let that stuff hit $10-$12 and watch the markets become flooded with it. If you think this is speculation just ask someone what happened in '79/'80. Also don't discount that there is a tremendous amount of silver in personal households...everybody has some silver, across the world. When the price goes up, there will be grandmas literally standing in line to sell the silver service, circ morgans, picture frames, bracelets...anything silver. I know this is true because I saw it. Then after everyone has traded in their silver, it will likely settle back to $6/$7 where it's been for the last 20 years and like it did after the last rush. Don't get me wrong, there were people buying houses with the money they made from silver in '79/'80 and it was a good thing and it could happen to you. Silver at best has been a spot play.
2. Ok, if you have 10-100 oz bars...precious metals are measured in troy weight or 12 oz=1 pound so 100 oz - 8.33 pounds so you have 10-100 oz bars or 83.3 pounds/1,000oz of silver. But wait, you could just have the paper and let someone else buy and store the metal for you and give you a receipt. BUY NOW BEFORE IT TAKES OFF. Well, there is a lot to be said for that. If you can get $5/$6 silver then you should get some and keep it till there is an $8 spike and sell it then you could make money. Go to some of the internet sites that sell silver investments and you will notice they are not much different than car sales men...Last chance!, The Price Will Never be Lower, Make money while there is still time, BIG RED LETTERS, etc, etc. They are selling for commission, that's how they make money, actually that's how they get your money. And they want to give you a piece of paper for your silver, kind of like a deposit slip...yeah, there's a good idea (NOT). Ok, you're so you are not going to fall for that and you will take physical possession of your 1000 oz...shipping costs+commissions+service fee and your $6 silver is all of the sudden costing you $8.25 when it gets to your safe deposit box...oh yes, you will need a large one ($) for 83.3 pounds of silver. So, you still want an 83.3 pound nest egg to sit on (surely it will go up some day)?
3. Wait, you could just buy mining stock and make money at the source, you get a stock certificate and all's well. Wrong again, ever heard the story about having an opportunity to buy a stake in a silver mine in Utah where they are going to begin mining next year? Or the one about just discovering huge reserves in Montana, right near a railroad spur or the proven reserves, or the new mine in N. California with huge proven reserves and a limited opportunity to get in before it is offered to the public? The mining stock business is a big mess. I still have 300 shares of mining stock from 1990 and I think it is worth about $50 in total right now and I'm going to be buried with it. I know there must be someone that has made money from mining stocks but just for drill, everyone that has lost money in metals mining stock raise your hands.
4. Silver is grossly undervalued. Yeah, it is grossly undervalued, in fact in just the last 10 years it has lost about 30% of it's purchasing power just in adjusting for inflation. Still there is no increases because of demand or consumption or anything but it just stays flat, not accounting for the losses from inflation. So what if the price of physical silver increases 30% to that magical $10/oz mark, then maybe you are about even with other investments you could have made that did not make ANY money if you have had your silver for a few years...IF it rises 30%. Or, an even more rosy scenario, as one board member put it, just add a "0" to every thing from 20 years ago and that is the current price in 2005, then silver should be on the order of $70/oz...hummmmmmm...how could it just be $7/oz today and everything else cost 10x more? It must be an international, government conspiracy, yeah, that's the ticket. Nah, it's that reality thing...silver is worth $7/oz right now because that's what people are willing to pay for it, that is what is it worth and has been for a loooooooong time. You could do much better looking for extra leaf Wisconsins in bank rolls.
I could go on but I doubt people will read much further and still have room left for the article below. Oh, yes, don't forget to read the disclaimer at the end of the article.
SILVER
"An Economic Geologist’s Perspective"
By
Nigel H Maund
BSc(Hons)Lond., MSc, DIC, MBA, MIMMM, SEG
Consultant Economic Geologist
Mineral Consulting International (NZ) Ltd.
Investor Summary
The fundamentals behind the world silver market are looking increasingly strong. Silver bullion stocks of central and investment banks are at an all time low, or, in many cases, totally depleted. The demand for silver, especially in the diverse high technology and medical market segments (40%) is steadily increasing, as is the investment market segment in silver coins and bullion. The analogue or standard photographic segment, a substantial industrial market for silver, diminished in the last calendar year by a matter of a few percent only, despite the much vaunted demise of the silver market posed by advent of digital photography. A substantial proportion; i.e., 70% of the "Old Silver Scrap" market, comprising some 22% of the total market supply, was provided through the recycling of photographic film and paper. Hence, demand for silver in the photographic market is 85%, met through recycling within this segment. Furthermore, the "take off" of the digital camera market is restricted, in large part, to the young and relatively affluent (professional and young) market segments in developed economies. To make full use of digital photography, one requires a computer and/or printer infrastructure, plus expensive printer cartridges, re chargeable batteries, and photographic papers, that are, collectively, generally beyond the pocket of the mass market. Therefore, it seems unlikely that digital photography will become a substitute for mass-market traditional photography in the near future. Given the growth in general affluence of the Asian markets, the mass market for conventional photography is likely to expand at a faster rate than the growth of digital photography, offsetting any decline in developed countries. Therefore, to analyze the silver market one has to see outside the photographic market segment.
In contrast to gold, where the bulk of mine supply is derived from primary gold producers (i.e.; those mines mining gold as the principal product), the structure of the silver supply side from mining is totally different, and remarkably inflexible and "tight". Silver is primarily supplied as a secondary by product of base metal (copper, lead and zinc) mines, or, as a co – product with base metals in the tetrahedrite – silver sulfosalt dominated deposits or from epithermal gold - silver deposits. Standalone silver mines comprise one of the smallest market segments in the entire metal mining industry. Indeed, in the USA and Canada there are only two significant primary silver and silver co – product producers: Coeur d'Alene Mines and Hecla Mining Corporation, which together supply the "princely" total of 4% of world silver demand or 24 M oz. If one factors in all significant co – product and primary silver producers worldwide, the world mine production figure for these deposits amounts to less than 10% of world supply. This is an amazingly tight market geared to only incremental increases in silver demand. Should investment demand for the metal suddenly increase, the mining industry could not respond. Banks, Metals Traders or Investment Houses have virtually no silver stocks to draw down. Therefore, their influence on the market could be considered insignificant. In short, the silver supply side has virtually no scope to adapt to any significant change in demand. Besides, it would take a price of over US20 per fine ounce to encourage people to sell, "en masse", the family silverware. Even then a "fire sale" of silverware would not necessarily bring down the silver price.
Low silver prices for much of the last 40 years, apart from the short lived Bunker – Hunt market spike around 1979 – 1980, when an ill-advised effort was made to cartelize the silver market, have meant that mining companies have had virtually no incentive to look for "standalone", or primary, or significant co – product silver resources. Hence, very few new resources of silver have been found, apart from those discovered as result of base metal, gold or tin exploration. Whilst huge potential exists to discover substantial primary silver resources, for the longer term, from the following deposit types: epithermal vein; porphyry copper – molybdenum related stockwork vein; and, vein array systems worldwide, the mining industry will require a sustained silver price, probably in the range from US$9 to US$12 or higher, to explore for, and develop, such systems. Right now the mining companies are very wary of silver's prospects, given its past 30 year history, and remain to be convinced of the metals long term prospects, given its "Cinderella" image within the precious metals market.
Should a major economic downturn affect the base metal markets, due, say, to a collapse of the Stock Markets, Bond Markets and Real Estate Markets, with the broader implications of bursting the Chinese – Asian market bubble simultaneously, then several of the base metal miners may cut back on production, or be forced to high grade their deposits at lower production rates. Faced with overvalued stocks, bonds and real estate, and a collapsing US dollar, rising oil prices (towards US$ 50 – 55 by end 2004), accelerating inflation, and, finally (as the Fed's hand is forced), accelerating interest rates, the World's No 1 economy, the USA, looks to be headed for the "Economic Train Wreck of All Time". This will bring the Global Economy, including China, to its knees. Under this scenario, investment demand for all the precious metals could quite simply take off to levels hitherto thought improbable.
Given the foregoing scenario, silver producers would have absolutely no chance of meeting such demand, unless the silver price became high enough to encourage the base metal miners to expand their operations on the basis of earning large silver credits. The primary silver producers are too small and limited in number to make anything other than a marginal impact on the market. It takes years to find, evaluate and develop a new mine of any size. Obviously, small vein mining operations, such as those in the Idaho silver belt, or at Slocan in British Columbia, could be rapidly brought on stream. However, their contribution to supply would be insignificant. Should the above catastrophic scenario not eventuate, the fundamentals for silver are the strongest they have been for 25 years, and, therefore, silver is headed higher come what may.
Finally, it is worth noting that the worldwide silver market currently (calendar year 2003) consumes 880 million ounces of the metal annually, of which 714 Moz can be considered a real supply minus recycled photographic waste. Given an average silver price of US$ 5.25 per fine ounce, this values the world silver market at a mere US$ 3.8 billion or significantly less than 10% of the present market capitalization of PEPSICO, and equal to approximately 10% of the worldwide gold market, which in turn is still less than 50% of the market capitalization of MICROSOFT Corporation.
Introduction
Silver has for much of the last Century been the "Cinderella" of the precious metals sector; i.e., very much the poor relation of its more glamorous, and less geochemically abundant, companions gold and the platinum group elements. Silver has been a monetary metal for nearly as long as gold; since first evidence of its active smelting, dated at around 3,000 BC, was discovered by archaeologists in the Eastern Mediterranean and Asia Minor. Indeed, there were periods in European and Chinese history where silver was more highly valued than gold. This merely reflected the supply and demand equation existing at that time, and did not accurately represent the geologic abundance of these metals, as subsequent events have proven.
In the early and middle years of the 20th Century silver, and latterly gold, have been demonetarized by the International Banking Cartel (controlled by the huge European Banking Houses such as the Rothschilds, Warburg's, Baring's, Hambro's, and, more recently, powerful US based banks such as J P Morgan, Kuhn Loeb, Salomons, Bear Stearn's, Goldman Sachs, Shearson Lehmann and Rockefeller's Chase Manhattan – Citibank) in favour of increasingly unrestrained paper issuance (FIAT), and, in the "Computer Age", digital money. During the latter part of the 20th Century; i.e., since 1982, unrestrained lending and monetary expansion have accelerated at a frenetic rate. The USA's Federal Reserve Chairman, Sir Alan Greenspan, will undoubtedly go down in history as the most profligate (and seemingly reckless) monetary expansionists of all time. His legacy can only bode well for the precious metals.
The Supply and Demand Equation
The key markets for silver are Industrial Applications (40%); Jewelry and silverware (31%); Photographic film (22%); and Coins and Medals (4%). The greatest immediate threat to the silver market comes in the area of photographic film, where digital photography has replaced conventional photography in developed countries such as the USA, Canada, Europe, Japan and Australia. However, as noted in the Investor summary, the take off of digital photography is limited by the fact that overall costs include a higher unit cost when compared to conventional equivalents due to the need for re – chargeable batteries, printers, photographic paper, computers to optimize picture production, etc. The mass market, developing in Asia, in particular, will largely opt for conventional photography based on overall cost. Digital photography will remain the preserve of the wealthy and professional, who can utilize to the full the technical advantages afforded by digital photography in their work. To date, the growth of digital photography has been largely confined to the select segments within developed nations: the USA, Canada, Australia, Europe, and Japan.
The photographic market makes a very modest demand on the silver market, because most (85%) of the silver used in this market is recycled as scrap. In this respect, this segment of the market is almost "a zero sum game", and, therefore, has far less impact on the supply and demand equation than is currently thought.
During the 20th Century, whilst silver was being demonetarized, new markets developed which more than counterbalanced the decline in coinage fabrication. Silver has unusual physical and chemical properties, including its high malleability and ductility, and more importantly, silver displays the highest electrical and thermal conductivity of any element known, and possesses an electrically low contact resistance making it a very useful metal in some electrical equipment. Furthermore, silver displays an ability to endure extreme temperature ranges. Silver's best-known characteristic is its sensitivity to and very high reflectance of light, apparent in camera film and freshly minted coinage and polished silverware. Given these important characteristics, it will come as no surprise that silver has become increasingly important in "Hi Tech" applications and is now an "industrial metal" rather than a precious metal in the strictest sense.
The "Hi Tech" applications of silver in industrial markets are "niche markets", in which silvers’ unique physical and chemical properties mean that the threat of substitution by cheaper materials is highly unlikely, if not scientifically impossible, given present technology. These markets are very likely to be growth areas, both in developed and developing countries, because of their self-evident value in society in very significant applications. For an overview of these uses the reader is referred to the website of the Silver Institute.
Coinage, jewelry and silverware are potential growth areas, in particular in the Asian markets, again due to silver's great beauty as a polished metal, and in its function as the poor man's precious metal for those who cannot afford to buy gold. As FIAT currencies meet their "Gotterdammerung", people will increasingly turn to real value, as all other asset classes go into serious decline. The limitation here lies in coinage and investment ingot fabrication, which comprises a mere 4% of the market, and is confined to Mexico, the USA, Canada and Australia. This market cannot be suddenly expanded to meet increased demand, should the need arise. Besides, silver supply is largely “spoken for” by the Industrial and Photographic markets in the form of set contracts.
Originally, silver was mined largely as native silver from supergene enriched, high grade, vein deposits. In these deposits already high grade silver sulfosalts are weathered and oxidized, near the present land surface, to reduce the silver to its native form and upgrade the existing deposit to "bonanza grades", of the order of thousands of grams per ton. Such deposits were the target of medieval mining activities throughout Central and South America, Europe and Asia. By the 17th and 18th Centuries, the majority of such deposits had been worked out, in these areas. This mining activity made silver the precious metal of the day owing to its relative abundance, when gold was relatively scarce. However, from the 1850's onwards successively larger gold districts were discovered: as placer gold in California and New South Wales; and as placer, deep lead and bedrock vein deposit gold mines in Victoria, Australia; the placer deposits of the Klondike in Canada, and, during the 1890's, the mighty Proterozoic (fossil) placer gold deposits of South Africa (more than 110,000 tons of gold metal) and the bedrock, vein array, deposits of goldfields of Western Australia, in particularly "the Golden Mile" at Kalgoorlie. Mining activities at these locations enabled countries to move towards a gold and silver standard as a basis for money.
During the early years of the 20th Century significant deposits of lead – zinc were discovered in the Central USA in the Ozark Hills and Tri – State districts, and in New South Wales, Australia, at Broken Hill. These mines all produced significant by product silver, largely from argentiferous lead ore, galena, at a time when supply of silver from primary resources was diminishing. This trend gathered pace in the immediate post WW2 era during "the golden days" of mineral exploration in the late 1950's to early 1970's when significant, and often large resources of carbonate hosted lead – zinc deposits in the USA and Canada (at Pine Point), and in Queensland, Australia, the giant Mt Isa and satellite Hilton deposits, were discovered. Furthermore, the huge Sullivan lead – zinc silver deposit was discovered in British Columbia. Progressively, the main source of silver supply shifted from primary silver producing vein systems to become a by product of large base metal mining operations. Increasingly significant quantities of silver were also being produced as a by product of the huge porphyry copper and molybdenum mining operations in the southwest USA, British Columbia, and South America, as well as from the expanding number of primary gold mining operations.
Supply of silver for calendar year 2003 equalled demand at 880 million ounces, and was comprised as follows in order of significance: Mine Production (68%); Old Silver Scrap (22%); Net Government Sales (9%) and Net Disinvestment (1%). There was no Producer Hedging in 2003 for obvious economic reasons.....why hedge when the only way for the silver market is up? It could hardly go much lower than it has been. However, as prices of silver rise, one may expect silver companies to hedge forward sales, in coming years, to lock in profits. Although, having said this, the USA's most famous primary silver producer, the great Coeur D'Alene Mines, remains proudly a "non-hedging company".
World Mine Supply
During 2003, the worlds’ 10 largest silver producing nations were as follows in order of production: Mexico, 93.8 Moz. (million ounces); Peru, 89.2 Moz.; Australia, 60.2 Moz; China, 46.8 Moz.; Poland, 44.3 Moz.; Chile, 41.6 Moz.; United States, 41.5 Moz.; Canada, 41.0 Moz.; Russia, 33.8 Moz.; and Kazakhstan, 22.9 Moz.
The worlds’ 10 largest silver miners are as follows: Industrias Penoles (Mexico) 48.4 Moz. (by product silver from lead – zinc operations at Fresnillo); KGHM Polska Miedz (Poland) 43.7 Moz (by product silver from copper operations); BHP Minerals Ltd. (Australia) 42.7 Moz. (from Cannington bonanza silver – lead - zinc mine); Kazakhmys (Kazakhstan) 19.5 Moz. (with gold mining); Grupo Mexico (Mexico) 19.0 Moz. (some primary silver operation as well as by product lead – zinc); Rio Tinto PLC (UK) 18.3 (by product of porphyry copper and lead – zinc mining operations worldwide) Moz.; Barrick Gold Inc.(Canada) 17.0 Moz. (by product of gold mining operations); Coeur d'Alene Mines (USA) 14.2 Moz (primary silver producer).; Polymetal (Russia) 13.3 Moz. (by product of lead – zinc and tin mining); and Xstrata (Mount Isa Mines) Australia 12.0 Moz (by product of lead – zinc silver mines at Mt Isa).
Surprisingly, Newmont Mining Ltd, a major worldwide gold producer, is only the worlds’ 13th largest silver producer (9.9 Moz), largely from its operations in the Carlin mining camp in Nevada, where silver is produced as a by-product of gold mining operations. Newmont has no major primary silver operations. Hecla Mining Company, a substantial primary silver producer, is the world's 15th largest producer with 9.8 Moz. This company operates substantial primary silver operations as well as having a significant and developing gold portfolio.
In terms of mine production, the following is a breakdown of where current mine production is sourced:
Ø Lead – Zinc deposits (mostly Mexico, epithermal lead – zinc - silver deposits, and Cannington, Mid Proterozoic (geologic age), lead – zinc – silver, sedimentary exhalative deposits, and Chinese deposits, which are largely marginal lead – zinc – silver operations) 31%;
Ø Copper deposits (primarily the Kupferschiefer of Poland and porphyry copper mines) 25%;
Ø Gold deposits (in particular Carlin type and Epithermal deposits) 14%
The silver market is dominated by a few large deposits such as those in Fresnillo, which comprise a part of the 800 km long Mexican lead – zinc – silver belt, and the large Polish sedimentary (copper shale or "Kupferschiefer" deposits), or the Mid Proterozoic age, bonanza, lead – zinc – silver deposit at Cannington, in the world famous Mount Isa belt in Queensland, Australia. During calendar year 2003, Cannington mined ore at an average grade of 544 grams per tonne silver, 11.9% lead and 4.5% zinc, and is, at present metal prices, a bonanza deposit. The mine produces 34.85 million ounces of silver per annum from argentiferous galena and friebergite ore. Another major silver producer, for more than a century, has been the giant Potosi mining camp in Bolivia.
With the exception of Cannington and Potosi, these companies are driven by base metal prices, and not silver prices, and so they are unlikely to expand production unless the silver price rises to levels where silver credits comprise a significant proportion of overall profits. Therefore, as far as silver is concerned, they are "demand inelastic". However, these companies have considerable exploration potential on their own doorsteps, but are in no rush to develop this known potential. They are market driven by their primary products, the base metals.
In terms of the capability to expand production at higher silver prices, one has to look to the primary silver companies, such as Couer D'Alene Mines, Hecla Mining Corporation and the like. These companies are highly experienced in sourcing and defining epithermal, stockwork systems and vein – tetrahedrite type silver deposits, in the USA, Canada and Central and South America. There is tremendous scope for exploration, throughout the Canadian and US Rocky Mountains, to discover additional primary silver resources.
Low silver prices have meant that "Silver States", such as Idaho, have largely gone unexplored for decades. Sterling Mining, a primary silver exploration company, has acquired the highly productive, and formerly high grade (800 g/t + Ag ) Sunshine Mine in Idaho. This mine extracted silver from a swarm of friebergite and silver sulphosalt bearing veins for a period of approximately 100 years. The Sunshine District has much undiscovered potential, and Sterling will be a company to watch as it gets underway with the re – evaluation of this major silver mining camp.
Klondike Gold is now taking a good hard look at the silver resources of the Slocan lead – zinc – silver camp in BC, and should be able to go rapidly into modest production once silver rises above US$ 6 – 7 / ounce. It has a large choice of potential medium to high-grade lead – zinc – silver veins to explore and possibly develop.
In summary, the key issue in respect of mine supply of silver is that primary silver producers comprise a mere handful of professional mining companies, of which the USA has the two most famous; i.e., Coeur d'Alene Mining and Hecla Mining Corporation. If one factors out the 166 Moz of silver recycled from photographic waste, then of the remainder, which can be considered the real silver supply; i.e., 714 Moz, the two major primary silver producers, Coeur and Hecla, supply less than 4%, or 24 Moz. If the major Cannington deposit is factored in as a co – product silver deposit production stands at only 8.3%, or approximately 60 Moz. This is a startling fact! In other words, the real silver supply side is incredibly heavily skewed by production from the base metal and gold miners. A figure of 20% production from primary, or co – product producers, would be considered a tight market but anything less than 10% implies we are dealing with a situation which could lead to a major price spike should demand suddenly accelerate.
Should the demand for silver accelerate due to increased conventional photographic usage in Asia (China and India) or investment demand for silver rapidly accelerate (more likely), then the market is almost totally inflexible in respect to its ability to respond to any sudden increase in demand. Furthermore, the lead time required to explore, evaluate and develop new mines varies from 4 to 7 years depending on politics, economics, infrastructure, geography and financing. Given silvers’ past lackluster performance, and poor market perception, very few lending institutions would be inclined to finance the development of a substantial primary silver deposit. Therefore, any new production would have to financed internally by those companies sufficiently cashed up or with the collateral and understanding of the market necessary to finance the development. Given these constraints, it seems unlikely that much in the way of new silver production will come onto the market unless the silver price rises to allow companies like Mines Management to develop their large low grade silver resource. Even then, no new silver will come onto the market for 2 to 3 years whilst the project is being constructed.
Should the silver price advance significantly and stay above US$ 8 – 10 per fine ounce, then one may expect existing silver miners and silver exploration juniors to significantly expand their exploration activities throughout the Rocky Mountain and Andes chain from Alaska to Chile. This 7000 km chain has huge epithermal silver potential. Similar potential exists in the mountain chain extending from the Carpathians in Eastern Europe through Turkey and the Caucasus to the Zagros mountains, Tien Shan and Himalayan mountain chain. Additional significant potential occurs in the Ural mountains of Russia associated with Hercynian – Variscan tin – molybdenum granites and epithermal - porphyry systems.
A Very Preliminary Look at Silver Miners of Interest to Investors
For those investors looking to buy shares in a primary silver mining company on home territory; i.e. within the USA, and well managed with an excellent balance sheet, one can do little better than look at HECLA MINING COMPANY. This company was established in 1891, and is Coeur d'Alene's smaller brother, although of equal vintage. Both companies operate in Northern Idaho's silver valley, as well as throughout the Rockies and South America. With a respectable annual production of 9.8 Moz of silver, at the very low cash operating cost of US$ 1.43 / fine ounce, this is a very profitable concern. Furthermore, Hecla has produced 204,000 ounces of gold during calendar year 2003 at a very respectable cash operating cost of US$ 154 / fine ounce. The company has a good balance sheet, is virtually debt free, is very well cashed up and well managed. Furthermore, HECLA has excellent exploration potential. In view of these facts, HECLA will be the subject of the first fundamental report on significant silver producers during August as the writer feels that the company merits serious consideration. For the interim, Investors are referred to HECLA's website for further details.
As an Economic Geologist the writer has to profess to having an emotional soft spot for Coeur d'Alene Mines. This company is one of the USA's mining legends and is North America's most famous silver miner. Coeur will also be the subject of an in-depth fundamental study during August, which will be presented on the writers’ own website to be launched in early August.
NHM
11.07.2004
Note:
The author would like to thank Dr Gary Matthews for his very helpful contribution concerning the photographic market for silver.
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Good article. I read all of it, and based on the additional information that I possess, I am not convinced of your position. It is missing many key elements, which of course would take a book to address. Read the posts I've put out about the case for silver by Ted Butler and the fundamental issue is that we have been running a structural deficit for 15 years, have used up 95% of the worlds silver amassed over thousands of years in just 50 years, have become a purchaser of silver (US) having run out of our 10 billion ounces once owned, and it will only get tighter. Manipulation is the key to low prices and Mr. Butler has shown great evidence for his case of manipulation. It is still the worlds best kept secret. Silver will explode and will continue to steadily grow in value in our lifetime, once the dealers no longer have the strenth to keep the lid on the price--then kaboom!
Peace,
coinfool "You broke the bonds and you loosed the chains; carried the cross of my shame, of my shame--you know I believe it..."
<< <i>1950's? NO. 1960's? NO. 1970's? Bingo. Any relation to removing the gold standard? Hmmm
One could make the arguement that home prices rose in the 70's as a result of inflation and demographic demand. The first baby boomers were turning 30 in 1976. This is the age at which home ownership first takes place.
I do think that precious metals have a place in anyone's investment portfolio. I just get nervous when I hear people say it is the lock, homerun, blockbuster, investment of the century. That it is impossible to lose money in metals and if you dont load yourself to the gills then you are a fool. >>
NOTHING IS A SURE THING. There are just those things that are more sure than others--never put all of your carnitas in one tortilla. It's just a great opportunity.
Peace,
coinfool "You broke the bonds and you loosed the chains; carried the cross of my shame, of my shame--you know I believe it..."
O.K. We have had several looks at Silver availability and potential manipulation, what about Gold? There seems to also be some leasing etc. to stay covered in this market as well.
Here are just a few facts, please add your own.
Several sources accord amount to the total Gold ever produced to be approximately 119,000 metric tons (3.8 billion troy ounces).
Current Gold production is approximately 2500 ton a year as of 2004
One writer has total Gold ever mined at 118,571 tonnes with 10,854 tonnes attributed to total loss.
The physical inventory which can be used to settle either the futures market or the OTC derivatives market has 6 million ounces of gold in eligible and registered form. Only 1.7 million ounces are currently in eligible form.
Total open interest currently at the Comex is 272,748 contracts of 100 ounces each. If you multiply those two numbers and then again by a cash price of $420 you get the futures market total open interest as US$11.4 billion. The OTC gross market has a value of $32 billion.
Good on you coinfool. You read the article. A bit biased, I will admit but, full of elusive factoids that seem critical of the "dwindling supplies" statements that run rampant on this board.
From the article..."Should the silver price advance significantly and stay above US$ 8 – 10 per fine ounce, then one may expect existing silver miners and silver exploration juniors to significantly expand their exploration activities throughout the Rocky Mountain and Andes chain from Alaska to Chile. This 7000 km chain has huge epithermal silver potential. Similar potential exists in the mountain chain extending from the Carpathians in Eastern Europe through Turkey and the Caucasus to the Zagros mountains, Tien Shan and Himalayan mountain chain. Additional significant potential occurs in the Ural mountains of Russia associated with Hercynian – Variscan tin – molybdenum granites and epithermal - porphyry systems."
I believe that is a true statement of fact. I also anticipate that there may well be a sustained spike in silver, maybe in the next few years. I also believe that that spike will settle again because there is plenty of silver in the world to be mined. So, in my mind there does seem to be the potential for a play and it may be in the next few years but it is not a given nor will it be a freebie, there is plenty of risk and for anyone that doesn't recognize that will meet their fate accordingly.
Regarding consipiracy and supply v.s. demand...It does not appear to be economically effective to mine silver as a sole resource right now and as noted earlier in this recent thread, most silver is a byproduct of other metals being harvested from ores. To me it seems very sensible that supply meets demand, a primary rule of resource price prognostication. I postulate that supply does meet demand for silver, once again, it is that reality thing. Fine silver is worth $7 and oddly enough, that is what it sells for. I do not believe there is any world conspiracy to manipulate silver but there may be plays going on here and there because after all, we did see the Hunt brothers show. Conspiracy theories may sell newsletters and provide fodder for talk shows but supply equals demand and the price will always reflect that reality. If you have too much of something, it's cheap...if you don't have enough, it's more expensive. Remember Ockham' Razor...In the presence of competing theories, the simpler of the two is more likely to be correct. So, given conspiracy v.s. supply=demand, I choose supply=demand, that reality thing. If the demand increases, there will be a very serious effort to "get the money" as in mine more silver. It is ALL about the money. If the money was there to make mining silver even mildly profitable, you and the rest of the world would be covered up in silver. Who knows, there may be some big secret that the market doesn't know...things that make me go hummmmmm. But it is a good thing to flesh this silver thing out amongst us in this forum so we all have at least a common understanding. MHO
You cannot simply go to the mountain and get more silver the day it reaches $10 an ounce. It takes years to establish a mining and smelting operation. And lets not forget how difficult it is to get environmental permits in this country. (Canada included)
I don't think it matters in any case. In 1980 the ready industrial supply of silver was almost 10 times what it is now, but speculation drove it up to $50 an ounce anyway. There was never an actual shortage, only a delay in contract delivery due to everyone being caught off guard. Everything is different now. I think people tend to forget that silver is a precious metal because it is RARE. According to the USGS as of 2003 the world supply of silver metal was 270,000 metric tons. That's less than half a troy ounce for each person in the United States. What happens when the general public decides they want a few silver coins to put away as an investment?
"...reality has a well-known liberal bias." -- Stephen Colbert
Some sound like they are taking plays from the way the goverment does bussiness by throwing money at a problem, just like Education. The fact is new finds of oil,gold, and silver are on the decline and the easy stuff is gone. Your going to have to tear up a lot more earth to get more silver, too bad energy is on the decline and it's cost is rapidly rising. The companys are exploring the best new areas now and going after secondary target aren't going to buy you much unless you get lucky or are willing to invest in unstable parts of the world.
1 metric ton is 2200 pounds x 16 oz/lb = 35,200 oz.
270,000 metric tons x 35,200 oz = 9.5 billion oz.
9.5 billion oz / 280 million US residents = 34 oz per person.
I doubt everyone in the US would want silver but if 10% do, then that would be about 20 pounds each.
They said we would run out of oil 30 years ago and we didnt. I dont think we will run out of silver either. It may take more time to establish and develope a mining concern, but if it is profitable then there are hundreds of mining companies that could convert and be up and running in much less time than you think.
I really hope silver does make a run. I just love opportunities to make money but I dont think it will be the greatest investment vehicle of the decade.
Sorry about the math error. The current world stockpile of silver metal is estimated to be around 300 million ounces, which is a little more than 1 ounce per individual in the US. Of this, Warren Buffet controls about 1/3. My point remains the same. If the general public ever decides they want to own silver coins, silver bowls, silver forks, or anything else there will not be enough.
270,000 metric tons is the estimate of total silver on the planet including reserves that have yet to be mined or are unrecoverable because they are trapped in seawater, underground, etc. Sometimes reading the USGS numbers is difficult.
"...reality has a well-known liberal bias." -- Stephen Colbert
Google let me down yet again but if memory serves there is only about twice as much silver in the ocean and the nodules lying on its bottom. This is especially interesting in that there is evidence that gold is removed from the ocean by some life forms and is less soluble than silver. This would seem to imply that there is well less than twice as much silve in the world (excluding the interior) than there is gold. In light of this it might not be a foregone conclusion that seeking silver in the Rockies or Andes would produce much product. Obviously if there were abundant amounts of easily extracted ores it would al- ready be in production.
While most silver is a byproduct of base metal mining it's also important to note that it is often a relatively low income producer for these mines so higher prices for silver would have little impact on base metal prices while higher base metal prices would have an im- pact on silver prices. Conversely if base metal prices were to drop than silver production would also fall.
<< <i>Furthermore, the "take off" of the digital camera market is restricted, in large part, to the young and relatively affluent (professional and young) market segments in developed economies. To make full use of digital photography, one requires a computer and/or printer infrastructure, plus expensive printer cartridges, re chargeable batteries, and photographic papers, that are, collectively, generally beyond the pocket of the mass market. Therefore, it seems unlikely that digital photography will become a substitute for mass-market traditional photography in the near future. Given the growth in general affluence of the Asian markets, the mass market for conventional photography is likely to expand at a faster rate than the growth of digital photography, offsetting any decline in developed countries. Therefore, to analyze the silver market one has to see outside the photographic market segment. >>
And you need very expensive dark room/photo processing equipment, chemicals, and paper to develop and print film. Of course very few people own those things. We rely on commercial photo processors, who also print digital photos. I find it hard to give much credence to anyone whose financial analysis is this thin. In fact, it sounds like someone grasping at straws to support his case.
Comments
<< <i>Silver is cheaper now than it was in the 1970's and FAR more scarce. I've never felt so sure about an investment in my life.
No offense.....but quotes like that make people poor very quickly. Over confidence causes blindness. >>
This is the common wisdom and it is almost always true--almost. However, we have an unprecedented situation here that has never been in our history. A supply/demand problem that cannot, or will not be solved even in the distant future. There's not enough silver and there won't be for a long time. Here in California, in Orange County where I live there was a 97% occupancy rate (I don't know the exact numbers now, but they are still high. I was a building instructor and I would be working with a developer who was building houses, condos, etc. This story is typical of ALL of my jobs: I was on a job and they were getting ready to build the model site--the first 3-5 models that would show what kind of houses people would have to choose from. The models were the actual models to be, but of course they were designed to be eye-candy in order to attract buyers from other develpments. Eye-candy wasn't necessary. Before we even broke ground on the model site, all 8 phases--120 houses were sold in a few weeks. People didn't even know what the models were going to look like--they only had descriptions and floorplans. It was a supply/demand issue here in California. Our $117,000, low-end condo became worth nearly 400k, and my in-laws $350K house became worth almost 1 million--supply/demand. We couldn't build houses fast enough for the people who wanted them. Of course you all know that this is what basic supply demand is. Well, we all know that this cycle is going to end, and those prices are going to drop again because the demand will change, and we aren't really running out of houses--just at that place at that time.
Silver is different. We have the same situation as the houses with the only exception being that not only can the end not be seen--it cannot even yet be conceived of. No one knows how we will get out of this mess and according to the things I've studied about it, they are about as close to getting an adequate substitute for silver, for industrial use, as they are close to finding faster than light travel. The demand and lack of supply are here to stay for a long time, and when the fit hits the shan, the prices are going to take off like a rocket. I'm not saying, sell everything, spend it all on silver and live in a cave until all comes to fruition. I'm only saying that I agree with Iwog--"I've never felt so sure about an investment in my life."
coinfool
"You broke the bonds and you loosed the chains; carried the cross of my shame, of my shame--you know I believe it..."
<< <i>I am not saying that silver wont go higher. I really dont care where it goes.
I am saying that whenever something is a SLAM DUNK...you are usually wrong. >>
Would you care if you were very certain that it was the best investment possiblity around? I would suggest doing a google search on Ted Butler, reading his archives, do your best to tear his arguments apart, including reading those who disagree with him and come to your own conclusions. But if you don't care to do that--of course--to each his own.
coinfool
"You broke the bonds and you loosed the chains; carried the cross of my shame, of my shame--you know I believe it..."
Exactly how did you determine this to be true? Furthermore what indications do you have that silver is a poor investment? For someone who "doesn't care" you sure have a lot of opinions on the topic.
<< <i>I am saying that whenever something is a SLAM DUNK...you are usually wrong.
Kinda like your Early Comm you were harping about being better
Supply:
Mined silver -- 600
Government sales -- 100
Scrap recovery -- 200
TOTAL SUPPLY -- 900
Demand
Industrial -- 350
Photography -- 200
Jewelry -- 300
Coins -- 30
Other -- 20
TOTAL DEMAND -- 900
No one has provided a convincing argument that the mines are nearly depleted, and that this level of production cannot be maintained for the foreseeable future. Government stockpiles may be depleted, but scrap recovery has been fairly consistent for the past decade. Assuming there is a 10 - 15 % gap between demand and supply, this would surely exert upward pressure, but not so much that silver prices will rocket upwards. Any increase will ultimately be mitigated by increasing mine activity, increasing recovery of scrap, and decreased demand. Prices may go up, but I would agree with cohodk -- the future direction in the price of silver is far from clear.
Sorry for the long article. I offered this diatribe but attached the article because I thougt it to be well written and will at least arm most of those that read this article with a minimum of silver knowledge. Personally, I have owned a fair amount from time to time and sold it from time to time over the course of 25 years. I really do wonder how many people out there are still holding $8 silver, just waiting, begging, wishing.
I am not a silver bug anymore but here is MHO.
1. "World supplies are almost gone and demand is still rising" Nah, world supplies are not gone. There are huge silver deposits that run from Alaska to Peru (go ahead and read the article below) and all over the world there are huge known deposits. Most people have no idea how many silver mines across the world will crank up as soon as it becomes more valuable to sell. Don't forget...It's about the money!. Yes, it will take two or three years to get it into consumers/investors hands (physical holding) but if you want to see some silver become suddenly available, let that stuff hit $10-$12 and watch the markets become flooded with it. If you think this is speculation just ask someone what happened in '79/'80. Also don't discount that there is a tremendous amount of silver in personal households...everybody has some silver, across the world. When the price goes up, there will be grandmas literally standing in line to sell the silver service, circ morgans, picture frames, bracelets...anything silver. I know this is true because I saw it. Then after everyone has traded in their silver, it will likely settle back to $6/$7 where it's been for the last 20 years and like it did after the last rush. Don't get me wrong, there were people buying houses with the money they made from silver in '79/'80 and it was a good thing and it could happen to you. Silver at best has been a spot play.
2. Ok, if you have 10-100 oz bars...precious metals are measured in troy weight or 12 oz=1 pound so 100 oz - 8.33 pounds so you have 10-100 oz bars or 83.3 pounds/1,000oz of silver. But wait, you could just have the paper and let someone else buy and store the metal for you and give you a receipt. BUY NOW BEFORE IT TAKES OFF. Well, there is a lot to be said for that. If you can get $5/$6 silver then you should get some and keep it till there is an $8 spike and sell it then you could make money. Go to some of the internet sites that sell silver investments and you will notice they are not much different than car sales men...Last chance!, The Price Will Never be Lower, Make money while there is still time, BIG RED LETTERS, etc, etc. They are selling for commission, that's how they make money, actually that's how they get your money. And they want to give you a piece of paper for your silver, kind of like a deposit slip...yeah, there's a good idea (NOT). Ok, you're so you are not going to fall for that and you will take physical possession of your 1000 oz...shipping costs+commissions+service fee and your $6 silver is all of the sudden costing you $8.25 when it gets to your safe deposit box...oh yes, you will need a large one ($) for 83.3 pounds of silver. So, you still want an 83.3 pound nest egg to sit on (surely it will go up some day)?
3. Wait, you could just buy mining stock and make money at the source, you get a stock certificate and all's well. Wrong again, ever heard the story about having an opportunity to buy a stake in a silver mine in Utah where they are going to begin mining next year? Or the one about just discovering huge reserves in Montana, right near a railroad spur or the proven reserves, or the new mine in N. California with huge proven reserves and a limited opportunity to get in before it is offered to the public? The mining stock business is a big mess. I still have 300 shares of mining stock from 1990 and I think it is worth about $50 in total right now and I'm going to be buried with it. I know there must be someone that has made money from mining stocks but just for drill, everyone that has lost money in metals mining stock raise your hands.
4. Silver is grossly undervalued. Yeah, it is grossly undervalued, in fact in just the last 10 years it has lost about 30% of it's purchasing power just in adjusting for inflation. Still there is no increases because of demand or consumption or anything but it just stays flat, not accounting for the losses from inflation. So what if the price of physical silver increases 30% to that magical $10/oz mark, then maybe you are about even with other investments you could have made that did not make ANY money if you have had your silver for a few years...IF it rises 30%. Or, an even more rosy scenario, as one board member put it, just add a "0" to every thing from 20 years ago and that is the current price in 2005, then silver should be on the order of $70/oz...hummmmmmm...how could it just be $7/oz today and everything else cost 10x more? It must be an international, government conspiracy, yeah, that's the ticket. Nah, it's that reality thing...silver is worth $7/oz right now because that's what people are willing to pay for it, that is what is it worth and has been for a loooooooong time. You could do much better looking for extra leaf Wisconsins in bank rolls.
I could go on but I doubt people will read much further and still have room left for the article below. Oh, yes, don't forget to read the disclaimer at the end of the article.
SILVER
"An Economic Geologist’s Perspective"
By
Nigel H Maund
BSc(Hons)Lond., MSc, DIC, MBA, MIMMM, SEG
Consultant Economic Geologist
Mineral Consulting International (NZ) Ltd.
Investor Summary
The fundamentals behind the world silver market are looking increasingly strong. Silver bullion stocks of central and investment banks are at an all time low, or, in many cases, totally depleted. The demand for silver, especially in the diverse high technology and medical market segments (40%) is steadily increasing, as is the investment market segment in silver coins and bullion. The analogue or standard photographic segment, a substantial industrial market for silver, diminished in the last calendar year by a matter of a few percent only, despite the much vaunted demise of the silver market posed by advent of digital photography. A substantial proportion; i.e., 70% of the "Old Silver Scrap" market, comprising some 22% of the total market supply, was provided through the recycling of photographic film and paper. Hence, demand for silver in the photographic market is 85%, met through recycling within this segment. Furthermore, the "take off" of the digital camera market is restricted, in large part, to the young and relatively affluent (professional and young) market segments in developed economies. To make full use of digital photography, one requires a computer and/or printer infrastructure, plus expensive printer cartridges, re chargeable batteries, and photographic papers, that are, collectively, generally beyond the pocket of the mass market. Therefore, it seems unlikely that digital photography will become a substitute for mass-market traditional photography in the near future. Given the growth in general affluence of the Asian markets, the mass market for conventional photography is likely to expand at a faster rate than the growth of digital photography, offsetting any decline in developed countries. Therefore, to analyze the silver market one has to see outside the photographic market segment.
In contrast to gold, where the bulk of mine supply is derived from primary gold producers (i.e.; those mines mining gold as the principal product), the structure of the silver supply side from mining is totally different, and remarkably inflexible and "tight". Silver is primarily supplied as a secondary by product of base metal (copper, lead and zinc) mines, or, as a co – product with base metals in the tetrahedrite – silver sulfosalt dominated deposits or from epithermal gold - silver deposits. Standalone silver mines comprise one of the smallest market segments in the entire metal mining industry. Indeed, in the USA and Canada there are only two significant primary silver and silver co – product producers: Coeur d'Alene Mines and Hecla Mining Corporation, which together supply the "princely" total of 4% of world silver demand or 24 M oz. If one factors in all significant co – product and primary silver producers worldwide, the world mine production figure for these deposits amounts to less than 10% of world supply. This is an amazingly tight market geared to only incremental increases in silver demand. Should investment demand for the metal suddenly increase, the mining industry could not respond. Banks, Metals Traders or Investment Houses have virtually no silver stocks to draw down. Therefore, their influence on the market could be considered insignificant. In short, the silver supply side has virtually no scope to adapt to any significant change in demand. Besides, it would take a price of over US20 per fine ounce to encourage people to sell, "en masse", the family silverware. Even then a "fire sale" of silverware would not necessarily bring down the silver price.
Low silver prices for much of the last 40 years, apart from the short lived Bunker – Hunt market spike around 1979 – 1980, when an ill-advised effort was made to cartelize the silver market, have meant that mining companies have had virtually no incentive to look for "standalone", or primary, or significant co – product silver resources. Hence, very few new resources of silver have been found, apart from those discovered as result of base metal, gold or tin exploration. Whilst huge potential exists to discover substantial primary silver resources, for the longer term, from the following deposit types: epithermal vein; porphyry copper – molybdenum related stockwork vein; and, vein array systems worldwide, the mining industry will require a sustained silver price, probably in the range from US$9 to US$12 or higher, to explore for, and develop, such systems. Right now the mining companies are very wary of silver's prospects, given its past 30 year history, and remain to be convinced of the metals long term prospects, given its "Cinderella" image within the precious metals market.
Should a major economic downturn affect the base metal markets, due, say, to a collapse of the Stock Markets, Bond Markets and Real Estate Markets, with the broader implications of bursting the Chinese – Asian market bubble simultaneously, then several of the base metal miners may cut back on production, or be forced to high grade their deposits at lower production rates. Faced with overvalued stocks, bonds and real estate, and a collapsing US dollar, rising oil prices (towards US$ 50 – 55 by end 2004), accelerating inflation, and, finally (as the Fed's hand is forced), accelerating interest rates, the World's No 1 economy, the USA, looks to be headed for the "Economic Train Wreck of All Time". This will bring the Global Economy, including China, to its knees. Under this scenario, investment demand for all the precious metals could quite simply take off to levels hitherto thought improbable.
Given the foregoing scenario, silver producers would have absolutely no chance of meeting such demand, unless the silver price became high enough to encourage the base metal miners to expand their operations on the basis of earning large silver credits. The primary silver producers are too small and limited in number to make anything other than a marginal impact on the market. It takes years to find, evaluate and develop a new mine of any size. Obviously, small vein mining operations, such as those in the Idaho silver belt, or at Slocan in British Columbia, could be rapidly brought on stream. However, their contribution to supply would be insignificant. Should the above catastrophic scenario not eventuate, the fundamentals for silver are the strongest they have been for 25 years, and, therefore, silver is headed higher come what may.
Finally, it is worth noting that the worldwide silver market currently (calendar year 2003) consumes 880 million ounces of the metal annually, of which 714 Moz can be considered a real supply minus recycled photographic waste. Given an average silver price of US$ 5.25 per fine ounce, this values the world silver market at a mere US$ 3.8 billion or significantly less than 10% of the present market capitalization of PEPSICO, and equal to approximately 10% of the worldwide gold market, which in turn is still less than 50% of the market capitalization of MICROSOFT Corporation.
Introduction
Silver has for much of the last Century been the "Cinderella" of the precious metals sector; i.e., very much the poor relation of its more glamorous, and less geochemically abundant, companions gold and the platinum group elements. Silver has been a monetary metal for nearly as long as gold; since first evidence of its active smelting, dated at around 3,000 BC, was discovered by archaeologists in the Eastern Mediterranean and Asia Minor. Indeed, there were periods in European and Chinese history where silver was more highly valued than gold. This merely reflected the supply and demand equation existing at that time, and did not accurately represent the geologic abundance of these metals, as subsequent events have proven.
In the early and middle years of the 20th Century silver, and latterly gold, have been demonetarized by the International Banking Cartel (controlled by the huge European Banking Houses such as the Rothschilds, Warburg's, Baring's, Hambro's, and, more recently, powerful US based banks such as J P Morgan, Kuhn Loeb, Salomons, Bear Stearn's, Goldman Sachs, Shearson Lehmann and Rockefeller's Chase Manhattan – Citibank) in favour of increasingly unrestrained paper issuance (FIAT), and, in the "Computer Age", digital money. During the latter part of the 20th Century; i.e., since 1982, unrestrained lending and monetary expansion have accelerated at a frenetic rate. The USA's Federal Reserve Chairman, Sir Alan Greenspan, will undoubtedly go down in history as the most profligate (and seemingly reckless) monetary expansionists of all time. His legacy can only bode well for the precious metals.
The Supply and Demand Equation
The key markets for silver are Industrial Applications (40%); Jewelry and silverware (31%); Photographic film (22%); and Coins and Medals (4%). The greatest immediate threat to the silver market comes in the area of photographic film, where digital photography has replaced conventional photography in developed countries such as the USA, Canada, Europe, Japan and Australia. However, as noted in the Investor summary, the take off of digital photography is limited by the fact that overall costs include a higher unit cost when compared to conventional equivalents due to the need for re – chargeable batteries, printers, photographic paper, computers to optimize picture production, etc. The mass market, developing in Asia, in particular, will largely opt for conventional photography based on overall cost. Digital photography will remain the preserve of the wealthy and professional, who can utilize to the full the technical advantages afforded by digital photography in their work. To date, the growth of digital photography has been largely confined to the select segments within developed nations: the USA, Canada, Australia, Europe, and Japan.
The photographic market makes a very modest demand on the silver market, because most (85%) of the silver used in this market is recycled as scrap. In this respect, this segment of the market is almost "a zero sum game", and, therefore, has far less impact on the supply and demand equation than is currently thought.
During the 20th Century, whilst silver was being demonetarized, new markets developed which more than counterbalanced the decline in coinage fabrication. Silver has unusual physical and chemical properties, including its high malleability and ductility, and more importantly, silver displays the highest electrical and thermal conductivity of any element known, and possesses an electrically low contact resistance making it a very useful metal in some electrical equipment. Furthermore, silver displays an ability to endure extreme temperature ranges. Silver's best-known characteristic is its sensitivity to and very high reflectance of light, apparent in camera film and freshly minted coinage and polished silverware. Given these important characteristics, it will come as no surprise that silver has become increasingly important in "Hi Tech" applications and is now an "industrial metal" rather than a precious metal in the strictest sense.
The "Hi Tech" applications of silver in industrial markets are "niche markets", in which silvers’ unique physical and chemical properties mean that the threat of substitution by cheaper materials is highly unlikely, if not scientifically impossible, given present technology. These markets are very likely to be growth areas, both in developed and developing countries, because of their self-evident value in society in very significant applications. For an overview of these uses the reader is referred to the website of the Silver Institute.
Coinage, jewelry and silverware are potential growth areas, in particular in the Asian markets, again due to silver's great beauty as a polished metal, and in its function as the poor man's precious metal for those who cannot afford to buy gold. As FIAT currencies meet their "Gotterdammerung", people will increasingly turn to real value, as all other asset classes go into serious decline. The limitation here lies in coinage and investment ingot fabrication, which comprises a mere 4% of the market, and is confined to Mexico, the USA, Canada and Australia. This market cannot be suddenly expanded to meet increased demand, should the need arise. Besides, silver supply is largely “spoken for” by the Industrial and Photographic markets in the form of set contracts.
Originally, silver was mined largely as native silver from supergene enriched, high grade, vein deposits. In these deposits already high grade silver sulfosalts are weathered and oxidized, near the present land surface, to reduce the silver to its native form and upgrade the existing deposit to "bonanza grades", of the order of thousands of grams per ton. Such deposits were the target of medieval mining activities throughout Central and South America, Europe and Asia. By the 17th and 18th Centuries, the majority of such deposits had been worked out, in these areas. This mining activity made silver the precious metal of the day owing to its relative abundance, when gold was relatively scarce. However, from the 1850's onwards successively larger gold districts were discovered: as placer gold in California and New South Wales; and as placer, deep lead and bedrock vein deposit gold mines in Victoria, Australia; the placer deposits of the Klondike in Canada, and, during the 1890's, the mighty Proterozoic (fossil) placer gold deposits of South Africa (more than 110,000 tons of gold metal) and the bedrock, vein array, deposits of goldfields of Western Australia, in particularly "the Golden Mile" at Kalgoorlie. Mining activities at these locations enabled countries to move towards a gold and silver standard as a basis for money.
During the early years of the 20th Century significant deposits of lead – zinc were discovered in the Central USA in the Ozark Hills and Tri – State districts, and in New South Wales, Australia, at Broken Hill. These mines all produced significant by product silver, largely from argentiferous lead ore, galena, at a time when supply of silver from primary resources was diminishing. This trend gathered pace in the immediate post WW2 era during "the golden days" of mineral exploration in the late 1950's to early 1970's when significant, and often large resources of carbonate hosted lead – zinc deposits in the USA and Canada (at Pine Point), and in Queensland, Australia, the giant Mt Isa and satellite Hilton deposits, were discovered. Furthermore, the huge Sullivan lead – zinc silver deposit was discovered in British Columbia. Progressively, the main source of silver supply shifted from primary silver producing vein systems to become a by product of large base metal mining operations. Increasingly significant quantities of silver were also being produced as a by product of the huge porphyry copper and molybdenum mining operations in the southwest USA, British Columbia, and South America, as well as from the expanding number of primary gold mining operations.
Supply of silver for calendar year 2003 equalled demand at 880 million ounces, and was comprised as follows in order of significance: Mine Production (68%); Old Silver Scrap (22%); Net Government Sales (9%) and Net Disinvestment (1%). There was no Producer Hedging in 2003 for obvious economic reasons.....why hedge when the only way for the silver market is up? It could hardly go much lower than it has been. However, as prices of silver rise, one may expect silver companies to hedge forward sales, in coming years, to lock in profits. Although, having said this, the USA's most famous primary silver producer, the great Coeur D'Alene Mines, remains proudly a "non-hedging company".
World Mine Supply
During 2003, the worlds’ 10 largest silver producing nations were as follows in order of production: Mexico, 93.8 Moz. (million ounces); Peru, 89.2 Moz.; Australia, 60.2 Moz; China, 46.8 Moz.; Poland, 44.3 Moz.; Chile, 41.6 Moz.; United States, 41.5 Moz.; Canada, 41.0 Moz.; Russia, 33.8 Moz.; and Kazakhstan, 22.9 Moz.
The worlds’ 10 largest silver miners are as follows: Industrias Penoles (Mexico) 48.4 Moz. (by product silver from lead – zinc operations at Fresnillo); KGHM Polska Miedz (Poland) 43.7 Moz (by product silver from copper operations); BHP Minerals Ltd. (Australia) 42.7 Moz. (from Cannington bonanza silver – lead - zinc mine); Kazakhmys (Kazakhstan) 19.5 Moz. (with gold mining); Grupo Mexico (Mexico) 19.0 Moz. (some primary silver operation as well as by product lead – zinc); Rio Tinto PLC (UK) 18.3 (by product of porphyry copper and lead – zinc mining operations worldwide) Moz.; Barrick Gold Inc.(Canada) 17.0 Moz. (by product of gold mining operations); Coeur d'Alene Mines (USA) 14.2 Moz (primary silver producer).; Polymetal (Russia) 13.3 Moz. (by product of lead – zinc and tin mining); and Xstrata (Mount Isa Mines) Australia 12.0 Moz (by product of lead – zinc silver mines at Mt Isa).
Surprisingly, Newmont Mining Ltd, a major worldwide gold producer, is only the worlds’ 13th largest silver producer (9.9 Moz), largely from its operations in the Carlin mining camp in Nevada, where silver is produced as a by-product of gold mining operations. Newmont has no major primary silver operations. Hecla Mining Company, a substantial primary silver producer, is the world's 15th largest producer with 9.8 Moz. This company operates substantial primary silver operations as well as having a significant and developing gold portfolio.
In terms of mine production, the following is a breakdown of where current mine production is sourced:
Ø Lead – Zinc deposits (mostly Mexico, epithermal lead – zinc - silver deposits, and Cannington, Mid Proterozoic (geologic age), lead – zinc – silver, sedimentary exhalative deposits, and Chinese deposits, which are largely marginal lead – zinc – silver operations) 31%;
Ø Copper deposits (primarily the Kupferschiefer of Poland and porphyry copper mines) 25%;
Ø Gold deposits (in particular Carlin type and Epithermal deposits) 14%
Ø Primary silver deposits ((in particular "Idaho type" tetrahedrite (silver rich species: friebergite) deposits and epithermal silver deposits)) 28%.
The silver market is dominated by a few large deposits such as those in Fresnillo, which comprise a part of the 800 km long Mexican lead – zinc – silver belt, and the large Polish sedimentary (copper shale or "Kupferschiefer" deposits), or the Mid Proterozoic age, bonanza, lead – zinc – silver deposit at Cannington, in the world famous Mount Isa belt in Queensland, Australia. During calendar year 2003, Cannington mined ore at an average grade of 544 grams per tonne silver, 11.9% lead and 4.5% zinc, and is, at present metal prices, a bonanza deposit. The mine produces 34.85 million ounces of silver per annum from argentiferous galena and friebergite ore. Another major silver producer, for more than a century, has been the giant Potosi mining camp in Bolivia.
With the exception of Cannington and Potosi, these companies are driven by base metal prices, and not silver prices, and so they are unlikely to expand production unless the silver price rises to levels where silver credits comprise a significant proportion of overall profits. Therefore, as far as silver is concerned, they are "demand inelastic". However, these companies have considerable exploration potential on their own doorsteps, but are in no rush to develop this known potential. They are market driven by their primary products, the base metals.
In terms of the capability to expand production at higher silver prices, one has to look to the primary silver companies, such as Couer D'Alene Mines, Hecla Mining Corporation and the like. These companies are highly experienced in sourcing and defining epithermal, stockwork systems and vein – tetrahedrite type silver deposits, in the USA, Canada and Central and South America. There is tremendous scope for exploration, throughout the Canadian and US Rocky Mountains, to discover additional primary silver resources.
Low silver prices have meant that "Silver States", such as Idaho, have largely gone unexplored for decades. Sterling Mining, a primary silver exploration company, has acquired the highly productive, and formerly high grade (800 g/t + Ag ) Sunshine Mine in Idaho. This mine extracted silver from a swarm of friebergite and silver sulphosalt bearing veins for a period of approximately 100 years. The Sunshine District has much undiscovered potential, and Sterling will be a company to watch as it gets underway with the re – evaluation of this major silver mining camp.
Klondike Gold is now taking a good hard look at the silver resources of the Slocan lead – zinc – silver camp in BC, and should be able to go rapidly into modest production once silver rises above US$ 6 – 7 / ounce. It has a large choice of potential medium to high-grade lead – zinc – silver veins to explore and possibly develop.
In summary, the key issue in respect of mine supply of silver is that primary silver producers comprise a mere handful of professional mining companies, of which the USA has the two most famous; i.e., Coeur d'Alene Mining and Hecla Mining Corporation. If one factors out the 166 Moz of silver recycled from photographic waste, then of the remainder, which can be considered the real silver supply; i.e., 714 Moz, the two major primary silver producers, Coeur and Hecla, supply less than 4%, or 24 Moz. If the major Cannington deposit is factored in as a co – product silver deposit production stands at only 8.3%, or approximately 60 Moz. This is a startling fact! In other words, the real silver supply side is incredibly heavily skewed by production from the base metal and gold miners. A figure of 20% production from primary, or co – product producers, would be considered a tight market but anything less than 10% implies we are dealing with a situation which could lead to a major price spike should demand suddenly accelerate.
Should the demand for silver accelerate due to increased conventional photographic usage in Asia (China and India) or investment demand for silver rapidly accelerate (more likely), then the market is almost totally inflexible in respect to its ability to respond to any sudden increase in demand. Furthermore, the lead time required to explore, evaluate and develop new mines varies from 4 to 7 years depending on politics, economics, infrastructure, geography and financing. Given silvers’ past lackluster performance, and poor market perception, very few lending institutions would be inclined to finance the development of a substantial primary silver deposit. Therefore, any new production would have to financed internally by those companies sufficiently cashed up or with the collateral and understanding of the market necessary to finance the development. Given these constraints, it seems unlikely that much in the way of new silver production will come onto the market unless the silver price rises to allow companies like Mines Management to develop their large low grade silver resource. Even then, no new silver will come onto the market for 2 to 3 years whilst the project is being constructed.
Should the silver price advance significantly and stay above US$ 8 – 10 per fine ounce, then one may expect existing silver miners and silver exploration juniors to significantly expand their exploration activities throughout the Rocky Mountain and Andes chain from Alaska to Chile. This 7000 km chain has huge epithermal silver potential. Similar potential exists in the mountain chain extending from the Carpathians in Eastern Europe through Turkey and the Caucasus to the Zagros mountains, Tien Shan and Himalayan mountain chain. Additional significant potential occurs in the Ural mountains of Russia associated with Hercynian – Variscan tin – molybdenum granites and epithermal - porphyry systems.
A Very Preliminary Look at Silver Miners of Interest to Investors
For those investors looking to buy shares in a primary silver mining company on home territory; i.e. within the USA, and well managed with an excellent balance sheet, one can do little better than look at HECLA MINING COMPANY. This company was established in 1891, and is Coeur d'Alene's smaller brother, although of equal vintage. Both companies operate in Northern Idaho's silver valley, as well as throughout the Rockies and South America. With a respectable annual production of 9.8 Moz of silver, at the very low cash operating cost of US$ 1.43 / fine ounce, this is a very profitable concern. Furthermore, Hecla has produced 204,000 ounces of gold during calendar year 2003 at a very respectable cash operating cost of US$ 154 / fine ounce. The company has a good balance sheet, is virtually debt free, is very well cashed up and well managed. Furthermore, HECLA has excellent exploration potential. In view of these facts, HECLA will be the subject of the first fundamental report on significant silver producers during August as the writer feels that the company merits serious consideration. For the interim, Investors are referred to HECLA's website for further details.
As an Economic Geologist the writer has to profess to having an emotional soft spot for Coeur d'Alene Mines. This company is one of the USA's mining legends and is North America's most famous silver miner. Coeur will also be the subject of an in-depth fundamental study during August, which will be presented on the writers’ own website to be launched in early August.
NHM
11.07.2004
Note:
The author would like to thank Dr Gary Matthews for his very helpful contribution concerning the photographic market for silver.
--------------------------------------------------------------------------------
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<< <i>I am saying that whenever something is a SLAM DUNK...you are usually wrong.
Exactly how did you determine this to be true? Furthermore what indications do you have that silver is a poor investment? For someone who "doesn't care" you sure have a lot of opinions on the topic. >>
I did NOT make a comment on silver. I DID make a comment on philosophy. This is based on MY experience in investment products. The more that subscribe to your thinking the more likely you are to be wrong.
Knowledge is the enemy of fear
<< <i>
<< <i>I am not saying that silver wont go higher. I really dont care where it goes.
I am saying that whenever something is a SLAM DUNK...you are usually wrong. >>
Would you care if you were very certain that it was the best investment possiblity around? I would suggest doing a google search on Ted Butler, reading his archives, do your best to tear his arguments apart, including reading those who disagree with him and come to your own conclusions. But if you don't care to do that--of course--to each his own. >>
I devote my time and money to my own investment vehicles. I know them inside and out and they treat me very well. I am not interested -no time- to investing in the actual metal. If the time comes then I will invest in those that mine the metal.
Whenever somebody tells me something is the "BEST INVESTMENT" around, I become very sceptical.
30 years ago they used to say that we were going to run out of oil. Demand and tight supplies would cause the prices to explode. Well, here it is 30 years later and oil prices havent event kept up with inflation.
Knowledge is the enemy of fear
<< <i>
<< <i>I am saying that whenever something is a SLAM DUNK...you are usually wrong.
Kinda like your Early Comm you were harping about being better
I have no idea what you are talking about.
Knowledge is the enemy of fear
Almost no one is subscribing to my theory. This is why silver is trading near historic lows.
Higashiyama, in commodities supply ALWAYS equals demand. The only variable is at what price. Assuming your numbers are correct you are pointing out that while 900 million ounces were required for industry in 2003, only 600 million ounces of new silver was produced while the rest represents a drawdown of existing supplies. Once again assuming that your numbers are correct, this means that at the end of 2003 there was at least 100 million ounces LESS silver available than at the beginning of 2003. (if you only count government sales)
This cannot continue and there are only two possible outcomes. Either new sources of mined silver are found, or demand drops to a sustainable level. After watching the tech stock bubble, the real estate bubble, and the beanie baby bubble, I am convinced that silver will skyrocket once the general public becomes aware of it being "the next big thing". At the point that speculative insanity takes over, industrial consumption will be irrelevant.
<< <i>This cannot continue and there are only two possible outcomes. Either new sources of mined silver are found, or demand drops to a sustainable level. After watching the tech stock bubble, the real estate bubble, and the beanie baby bubble, I am convinced that silver will skyrocket once the general public becomes aware of it being "the next big thing". At the point that speculative insanity takes over, industrial consumption will be irrelevant. >>
And at that point, I bail out 100% and laugh all the way to the bank and a well deserved early retirement.
That point will come, make no mistake, the only question is when and how high.
When? Likely sooner than some think. How high? Again, probably higher than some think. To reach the atmospheric levels of 1980 in current 2005 dollars, it would have to excede $125 an ounce. No, I don't think that is realistic at all, but nothing would surprise me once the dam breaks.
John Marnard Keynes, The Economic Consequences of the Peace, 1920, page 235ff
(just curious)
-g
I'd give you the world, just because...
Speak to me of loved ones, favorite places and things, loves lost and gained, tears shed for joy and sorrow, of when I see the sparkle in your eye ...
and the blackness when the dream dies, of lovers, fools, adventurers and kings while I sip my wine and contemplate the Chi.
<< <i>...When? Likely sooner than some think. How high? Again, probably higher than some think. To reach the atmospheric levels of 1980 in current 2005 dollars, it would have to excede $125 an ounce. No, I don't think that is realistic at all, but nothing would surprise me once the dam breaks. >>
I kind of wonder what would drive the price of silver to $125/toz; I kind of like the idea of trading bulk silver for early US coins.
It's almost like the current proof sets, for the money being offered, they can have them!
-g
I'd give you the world, just because...
Speak to me of loved ones, favorite places and things, loves lost and gained, tears shed for joy and sorrow, of when I see the sparkle in your eye ...
and the blackness when the dream dies, of lovers, fools, adventurers and kings while I sip my wine and contemplate the Chi.
I am a member of PSA, (PCGS sister company) and mostly collect Baseball cards and i was wondering what your views were on how other collectibles besides coins might do over the next 5 to 10 years? I collect with disposable income and for fun above all, But after a while so much its learned that it could be possible to predict certain trends and certain investment opportunities.
Vintage baseball cards ( pre wwII) have performed quite well for the last 10 years or so but unlike gold and silver coins they do not have any intrinsic value.
Also I have not heard much at all about Platinum or how it relates to economic preasures and the supply/demand side of this particular metal. Is it only found in jewlery or does it have any other uses? why does it trade at such high levels? how does the platinum market work?
I also would like to thank you all for making this post such a fantastic source of information and opinions.
Groucho Marx
<< <i>What are your feelings if gold goes to $385 USD this month?
(just curious)
-g
I'd say it's time to speculate if you can afford it. I really think gold has seen it's bottom and looks to be on the rise for quite some time now. I just picked up another 10 ounces to stash away yesterday at this currently low price.
Still, percentage wise there is no bigger upside with minimal downside than silver.
I don't hold that much gold, so it's not a huge concern for me personally.
John Marnard Keynes, The Economic Consequences of the Peace, 1920, page 235ff
<< <i>
<< <i>...When? Likely sooner than some think. How high? Again, probably higher than some think. To reach the atmospheric levels of 1980 in current 2005 dollars, it would have to excede $125 an ounce. No, I don't think that is realistic at all, but nothing would surprise me once the dam breaks. >>
I kind of wonder what would drive the price of silver to $125/toz; I kind of like the idea of trading bulk silver for early US coins.
It's almost like the current proof sets, for the money being offered, they can have them!
-g >>
The actual market is so small that it could be manipulated to that point ala the Hunt brothers. However, TPTB aren't going to let that happen again. Just ask Warren Buffet.
I suppose some unforeseen technological breakthrough could do it. Who knew that teleporters and faster than light speed simply required a large mixture of silver and a bit of element 115? Seriously though, such levels are very unlikely under any realistic conditions. Now $20 an ounce isn't so out of the realm of possibility, but it's still quite a ways off. Rampaging inflation could drive everything up as well.
John Marnard Keynes, The Economic Consequences of the Peace, 1920, page 235ff
Just check the charts from a year ago to today. Whew! Granted, it's not gold and silver, but what a ride that would have been had you plunked down your life savings there last year.
John Marnard Keynes, The Economic Consequences of the Peace, 1920, page 235ff
<< <i>
<< <i>What are your feelings if gold goes to $385 USD this month?
(just curious)
-g
I'd say it's time to speculate if you can afford it. I really think gold has seen it's bottom and looks to be on the rise for quite some time now. I just picked up another 10 ounces to stash away yesterday at this currently low price.
Still, percentage wise there is no bigger upside with minimal downside than silver.
I don't hold that much gold, so it's not a huge concern for me personally. >>
It seems the price of gold (currently) is quite high (when compared to the last 6 years); wasn't gold ~$265 USD back in '99?
-g
I'd give you the world, just because...
Speak to me of loved ones, favorite places and things, loves lost and gained, tears shed for joy and sorrow, of when I see the sparkle in your eye ...
and the blackness when the dream dies, of lovers, fools, adventurers and kings while I sip my wine and contemplate the Chi.
This is generally consistent with my post (except that some of the 100 million less silver you refer to you could be available for later recycling). In any case, I don't disagree with the concept, only the conclusion. Absent the type of inflation fear that existed in the late 1970s, I don't see that a major run-up in the price of silver is likely.
<< <i>... Now $20 an ounce isn't so out of the realm of possibility, but it's still quite a ways off. Rampaging inflation could drive everything up as well. >>
Would you sell at $20/toz?
I think I would.
It wasn't too long ago, that silver was <$5 US/toz...
-g
I'd give you the world, just because...
Speak to me of loved ones, favorite places and things, loves lost and gained, tears shed for joy and sorrow, of when I see the sparkle in your eye ...
and the blackness when the dream dies, of lovers, fools, adventurers and kings while I sip my wine and contemplate the Chi.
<< <i>People who sell at $20 will be like those who sold their homes in 2001 after making 20% in one year. >>
I try not to be too greedy, 20% in 1 yr return (or in our case, selling at $20 USD 200% return over 2 years) is perfectly fine for me.
Edit: Then again, a 10% return/yr is reasonable to me.
-g
I'd give you the world, just because...
Speak to me of loved ones, favorite places and things, loves lost and gained, tears shed for joy and sorrow, of when I see the sparkle in your eye ...
and the blackness when the dream dies, of lovers, fools, adventurers and kings while I sip my wine and contemplate the Chi.
<< <i>People who sell at $20 will be like those who sold their homes in 2001 after making 20% in one year. >>
If I sold all my holdings at $20, it would be closer to 350% to 400% in 30 months. I don't think I'll have that opportunity anytime soon, though.
Actually, I am quite content to flip bullion at 5% - 8% on the high side and I try to do it all the time. That doesn't sound like much but if you do it often, it adds up over the year. I pay enough taxes on it to know quite well by now.
John Marnard Keynes, The Economic Consequences of the Peace, 1920, page 235ff
easier to replace in most of its applications. It is far scarcer than silver or gold as are
most of the metals it can be replaced by. It has an extraordinarily high melting point
and this makes it necessary in a few applications.
There could be a lot more silver available than is usually reported but it is being con-
sumed and it is not being heavily set aside as investment. Eventually something will
have to change or something will give. While it's true that this could be far in the fu-
ture, I too, am betting that at some point speculative demand will push it far higher
before something changes or gives. This sort of demand can be huge multiples of the
industrial demand which is destroying it at an ever increasing rate. The fact that indus-
trial demand is relatively inflexible to price will assure that even after the price were to
increase that the supply will continue to decrease. Since most markets operate far more
on pschology than on fundamentals this is a recipe for an extremely explosive situation.
That means your stocks earning "X" percent have lost 30% as well due the fall of the US dollar. When discussing the 5-10 year returns on PM's don't fail to include that over the past 10 years or so stocks have returned very little also. Gold hit bottom in 2001 at $265.
The US hit peak oil production in 1970 and it has been falling ever since. There are analysts out there now that think Saudi Arabia oil is at or near its peak also. With increasing demand from Asia, and oil supplies fixed or falling, that would imply rising oil prices for quite some time.
It takes typically 5 years to bring a mine to fruition. And resurrecting older mines maybe at least a few years. The infrastructure of the mining industry has been decimated in the 1990's due to the "carry" trades and miners taking "short" positions against there own companies. Even at $20 new mine production will have essentially little effect on stalling silver prices. That so-called braking mechanism is nearly broken.
The French passing on the EU constitution is longer term bullish for gold. However in the short term a drop in the Euro is gold negative.
Call it spin doctoring for now. The dollar is certainly not exploding upwards. Actually I'm very surprised that gold is still well above $400 with the rally the US dollar index has achieved in the past few months. If gold were that weak we should be at $385 by now!
The majority on this forum feel that silver has no future. I guess if you think the majority is usually wrong, this speaks volumes.
roadrunner
I just hope silver stays "cheap" for another five years or so since right now I'm po'. I am pouring all my money into an investment that is guaranteed to have strong returns--my education.
If the gold standard was the cause of bank runs and constant busts in the 1800's why didn't it get changed? Why the great mistrust in paper currencies? If our govt was founded on paper currency in the 1700's would the nation be where it is today? Imagine, 200+ years of constant inflation at 3% per year. I would think that today we'd be using wheelbarrows of currency to buy groceries if that was allowed to happen. If Keynes was alive in 1787 this is what we would have today. Did the fact that the US did not own the world's reserve currency in the 1800's have some bearing on the booms and bust listed above? We had to be responsible for our own currency. No one else was there to support it. The rest of the world was not our playground yet. Blaming gold for all the other associated problems of the 19th century seems very simplistic.
The US has been OFF the gold standard for a MEASLY 34 years. Hence, all the comparisons of today vs the first 130 years of our history is an absurd comparison. How do you compare a mere 34 years of current history and a world that is still tied down to our currency to more than a century of history with a much less sophisticated economy and financial system? Let's just say that we haven't even touched on the outcomes of what being unbacked by gold means. The $500 Trillion world derivative market didn't even exist in 1980. What little existed in futures may have been a few trillion at best. It's 50 or more times larger today. What effect will this have on today's markets when things get stretched to the limit? No one knows. We don't have 100 years of no-gold or no-derivative history. This is an infant (no-gold) economy in that sense that has seen only 1 business cycle. The first half was stiffled in 1980-1982 by applying interest rate brakes. The next half cycle ran over 20 years on easy credit, borrowing and printing money. Anyone remember Nixon and his Whip Inflation Now campaign (WIN) in the early 1970's? The inflation rates they were dealing with were less than what we have today! We think nothing of them now. And the index they used back then was far less forgiving. Inflation indexes were once tied to the money supply. No longer. The Index we use today is far more tweaked and doesn't even include a reference to increasing monetary supply...which is exactly what inflation really means.
When did home prices start to go crazy in price? 1800's? NO.
1950's? NO. 1960's? NO. 1970's? Bingo. Any relation to removing the gold standard? Hmmm? Let's not forget as Bill Bonner was quoted earlier in this thread that we have yet to experience the normal down cycle associated with the up cycle of 1982-2001. This is not "economic Jihad" but merely normal market cycling to erase excesses. But since this excess has only been extended further, the normal market down cycle may end up being anything but "normal."
roadrunner
Yes. The mines I was referring to was more of the gold variety.
But I would assume that there are dedicated silver mines out there and adding another one to the list would take years to do. I've never seen a reliable industry reference anywhere that states that gold or silver mines could be built in 1-2 years. The only place I keep seeing that is here on the forum.
roadrunner
One could make the arguement that home prices rose in the 70's as a result of inflation and demographic demand. The first baby boomers were turning 30 in 1976. This is the age at which home ownership first takes place.
I do think that precious metals have a place in anyone's investment portfolio. I just get nervous when I hear people say it is the lock, homerun, blockbuster, investment of the century. That it is impossible to lose money in metals and if you dont load yourself to the gills then you are a fool.
Knowledge is the enemy of fear
You left out the part about knowing a big secret that the rest of the market doesn't know.
<< <i>You left out the part about knowing a big secret that the rest of the market doesn't know >>
Too funny. One person says silver bulls are wrong because "everyone thinks silver is going to go up" and when everyone thinks something it never happens. Another person says that because everyone else disagrees with us, that makes us wrong. Go figure.
The Mississippi River will eventually break through its levee and bury New Orleans under tons of water, in the opinion of many engineers and scientists. Of course, it could happen a thousand years from now. Or tomorrow.
<< <i>
<< <i>You left out the part about knowing a big secret that the rest of the market doesn't know >>
Too funny. One person says silver bulls are wrong because "everyone thinks silver is going to go up" and when everyone thinks something it never happens. Another person says that because everyone else disagrees with us, that makes us wrong. Go figure.
The Mississippi River will eventually break through its levee and bury New Orleans under tons of water, in the opinion of many engineers and scientists. Of course, it could happen a thousand years from now. Or tomorrow. >>
Those dang Cajuns have no sense of humor. It's entirely possible they'll just keep building
the levees higher indefinitely.
Nothing is assured. But you have to put your bets somewhere on the table and go with them. Today's hyperactive and inflated economy requires a bet or the end result is you will get buried by inflation. The only thing bad about this is that some of the choices are worse than doing nothing. My brother has added 2 houses to his portfolio and that's his bet. Everything is riding on his 3 homes continuing to appreciate. Deadhorse is counting on silver and gold.
TDN likes his coins (I like 'em too!). The 1950's are gone when you didn't have to count on your house for economic survival and "wealth building." That's what jobs and real investments were for. Houses should depreciate as they wear out.
It's possible to lose money in everything out there today....and big time to boot. And with no risk being taken, you lose 3-6% to inflation. You have to pick a "path" (inflation, deflation, stagflation, depression, hyperinflation, muddle through economy, peaches and cream, WW III, Shangri-la, or a combo) and then select your investment mix accordingly. This is what it really means to have a fiat money economy.
Gentleman.....place your bets in the 21st century Republocratic Lottery. There are no truly safe choices. Monty Hall will be your guide with Alan Greenspan filling in for Carol Merrill: Door #1, Door #2 or Door #3??
roadrunner
I would strongly endorse this statement, with a couple of additional comments. As you suggest, it is hard to develop an investment strategy without a context. A related thought -- it is probably impossible to development an investment strategy that excels in all situations! I think it is possible, however, to develop a strategy that does reasonably well in several alternative scenarios, and mitigates risk in most scenarios.
Also, it is important to develop contingency plans -- at some point it may be clear that the scenario envisioned is not evolving. Many people, including me, have trouble making this adjustment.
In development my own "strategy" (if it can be deemed such
It will do it at the most unusual time and in the most unusual way.
If one asks which way the market, I would say YES IT WILL.
Camelot
<< <i>For all those who say there isn't enough silver, I just don't see it in the numbers, which are roughly as follows for 2003 (in millions of ounces):
Supply:
Mined silver -- 600
Government sales -- 100
Scrap recovery -- 200
TOTAL SUPPLY -- 900
Demand
Industrial -- 350
Photography -- 200
Jewelry -- 300
Coins -- 30
Other -- 20
TOTAL DEMAND -- 900
No one has provided a convincing argument that the mines are nearly depleted, and that this level of production cannot be maintained for the foreseeable future. Government stockpiles may be depleted, but scrap recovery has been fairly consistent for the past decade. Assuming there is a 10 - 15 % gap between demand and supply, this would surely exert upward pressure, but not so much that silver prices will rocket upwards. Any increase will ultimately be mitigated by increasing mine activity, increasing recovery of scrap, and decreased demand. Prices may go up, but I would agree with cohodk -- the future direction in the price of silver is far from clear. >>
Coinfool: I’m not sure where you got your chart from, and I’m not saying that it isn’t valid, it’s just that we all know that those who make charts can keep critical elements out, especially if they have something to protect or gain from certain facts remaining hidden. The fact of the matter is that we have been running an approximate 200 million ounce per year deficit for a few decades now. Furthermore, the world has consumed 95% of total known inventory of silver in over the past 50 years alone. It took thousands of years to build up that inventory and it was used up in a snap. The implications are staggering. The structural deficit is massive. You need to look deeper into the supply demand issue, from different angles. Different sources. Taking into consideration conflicts of interest with the dealers especially who have been manipulating the market for years. I’ve seen many different charts saying lots of different things. I try to find the most neutral.
Sorry for this long article by Ted Butler, but it’s a good read. Check out the rest of his archives at: http://www.butlerresearch.com/archive_free.html
“Making The Case
By Theodore Butler
(From Jim Cook - I've asked Ted Butler to explain, in the clearest terms possible, why he feels silver is manipulated. I know he has been making the case for years, but I'm requesting he prove the silver manipulation in terms that anyone can understand. Investment Rarities does not necessarily endorse these views, which may or may not prove to be correct.)
I was a bit put off at first by Jim Cook's repeated requests to more fully explain the manipulation of silver. My first reaction was - what do you think I've been doing all these years? But then I thought about it and realized that was a very legitimate request. After all, I'm the one making the claim that silver has been manipulated for years, and it is my responsibility to make sure that everyone can understand my claim.
Mr. Cook's request made me think back to that time, more than 30 years ago, when I was hired by Merrill Lynch as a commodity broker trainee (Commodity Training Class #2). I was a college graduate (dean's list), with plenty of business experience (I worked full time and attended school at night), felt like the luckiest guy in the world to have gotten the job and I was determined to succeed. Yet I found myself stumped for weeks on what a short sale was. I just couldn't grasp the concept of how you could sell something you didn't own. I'm not going to dwell on short sales, I’m just trying to acknowledge that a lot of what I write about is complicated stuff - short sales and metals leasing/forward selling. While it is second nature to me now, that's only after many years of study. At first, it was difficult.
This is going to be a very simple proof that silver is manipulated. So simple, in fact, that you don't have to have a deep knowledge of silver. All you need is an understanding of simple economic terms. I am going to try to prove silver can't possibly be considered a free market, and by eliminating the possibility that fits any definition of a free market, you will be left with the only alternative - that silver is in a non-free, or manipulated state. I will also point out well-known, current manipulations in other commodities to demonstrate that ongoing manipulations do exist.
Webster's defines a free market as an economic market operating with free competition. It’s the foundation for capitalism, and the opposite of a communist or a controlled market system. Free markets depend on open competition and are governed by the law of supply and demand. All products and services, except those reserved for the government or monopolies, are subject to the law of supply and demand.
The law of supply and demand is a three-legged stool - supply, demand and price. The interplay between these three components is the basis of the free market system. Price is usually the most important component. The price component controls and balances the other two - supply and demand. It is of paramount importance that the price component never be tampered with. If the price is tampered with, it will automatically mess up supply and demand, without exception. There has never been a case of price controls, for instance, that didn’t result in either shortage or oversupply. That is why the whole body of U.S. commercial law prohibits artificial price controls.
School children are expected to learn how the law and supply operates. If there is more demand than supply for an item, the price must rise in order to increase production and decrease consumption. If there is more supply than demand, the price must fall in order to increase consumption and decrease supply. For instance, if General Motors experiences unexpected demand for a hot new vehicle, and can't produce it fast enough to satisfy that demand, the price won’t be reduced. If General Motors actually lowered the price of a hot new vehicle in short supply, it would increase demand instead of cooling it off. GM only lowers prices or offers rebates when it has excess inventory it wants to sell, not when it can't keep up with demand. If sugar producers around the world grow a record crop which is much more than can be consumed, you wouldn’t expect the price to rise. Under the law of supply and demand price alone balances all surpluses and deficits.
The key point is that the price is the regulator, or governor, as to how much of a commodity gets produced and consumed. The price, in this case, is the "invisible hand" of famed economist Adam Smith. Too high a price will always produce, in time, too much supply and not enough demand. Too low of a price eventually guarantees a shortage. Generally, it is perfectly normal, in a free market, for prices to swing alternatively between too high and too low as demand adjusts to supply and vice-versa. It is these regularly-occurring price swings that establish the normal cyclical nature of markets. The problem arises when dominant market participants seek to control the normal cyclical price swings to their advantage. This happens more often than you might imagine.
It is possible to intentionally influence the price component by manipulating supply or demand. For almost 30 years, the Organization of Petroleum Exporting Countries (OPEC), has exerted great influence on the price of oil by intentionally controlling, or attempting to control, the supply of oil at the margin. That they have done this openly for three decades has dulled us to this obvious ongoing manipulation. For more than 50 years, likewise, the Central Selling Organization (CSO) of the DeBeers' conglomerate has influenced the price of diamonds, by intentionally controlling the supply of raw diamonds entering the market. Both organizations are cartels that restrict open competition in order to establish a higher price than would otherwise prevail. As such, they are illegal under U.S. antitrust law. They continue to exist as they are outside effective U.S. jurisdiction. For them, the demand component is strong enough to permit the manipulation to continue. Clearly, these two examples indicate that controlling the supply of a commodity can effectively influence the price.
Why can’t silver be considered to be in a free market? For one thing, there have been no normal cyclical price swings for more than a decade. The price has basically been flat for 15 years. Remember, it is normal for prices to move between "too high" and "too low" as supply and demand react between oversupply and excessive demand. This is especially true in a commodity that fits the dual role of industrial commodity and precious metals investment. It would be reasonable to expect more, not less, price volatility due to the emotional nature of a speculative investment. It is not normal for the silver price to be flat, particularly given the fact that prior to the start of the modern silver manipulation in 1983, silver had the most price volatility of any commodity. From the most volatile to least volatile - why?
This past decade of unprecedented lack of price volatility occurred precisely at the same time that the law of supply and demand would dictate the exact opposite. For the past 14 consecutive years, silver has remained in a documented supply deficit, verified by a reduction in world inventories of more than 1.5 billion ounces. In most commodities, a deficit of one year or less is enough to send the price skyward, as required by the law of supply and demand. In a commodity deficit, the price must rise to encourage increased production and to discourage, or ration, demand.
There is no legitimate free market explanation for a deficit lasting 14 consecutive years amid flat and low prices. I have asked this question of the CFTC, the COMEX, analysts, the Silver Managers and the world. No legitimate answer has emerged. No legitimate answer will emerge. That's because the only possible answer is manipulation. It is this lack of a legitimate, free market answer to a very simple and obvious question which should prove, to a reasonable person, that either there is something wrong with the basic definition of the law of supply and demand, or that silver is not in a free market.
The key to understanding how the silver market is manipulated is to look at how OPEC and DeBeers manipulate the oil and diamond markets. The common denominator of all three manipulations is that it is the supply component that is interfered with, in order to effect an influence on the price component. The difference, however, is that while the OPEC and DeBeers cartels artificially restrain supply in order to intentionally increase the price of oil and diamonds, the Silver Managers' cartel artificially increases the supply in order to intentionally depress the price of silver.
How does the Silver Managers' cartel artificially increase the supply of silver? By leasing physical silver and by unlimited short selling on the COMEX. OPEC and DeBeers rely on only one device, withholding supplies. The Silver Managers have two manipulative devices at their disposal. Whenever additional physical inventory supply is needed to supplement the deficit between current production and consumption (which is pretty much all the time), the Silver Managers call on the central bank of the moment (currently Red China) for non-free market silver. I say non-free market, because no price component is involved in the physical silver transfer through leasing, only false promises of return to the bureaucrats involved. That enables the Silver Managers to artificially increase the supply component at will.
I know this metals leasing business is difficult to grasp, but because it's so central to the silver manipulation, it is important to try to understand just what is involved. The complexity of this concept is what has enabled the manipulation to continue for so long. The Silver Managers have called on various central banks over the past 15+ years to take real silver from those central banks to dump on the market, whenever the Silver Managers have needed to artificially add to the supply component in order to intentionally keep the price depressed. This is at the heart of how they control the silver market. These are backroom deals that nobody is willing to discuss. This is completely against every tenet of the free market and the law of supply and demand. The central banks don't even get paid for giving the Silver Managers the silver, they just get some silly interest rate of less than 1% a year. Why would the central banks ever participate in such a stupid scheme? I know in my bones the answer to that question. It’s possible the Silver Managers are giving financial considerations to the central bank official responsible for allowing the silver to leave the vaults of the central bank. It's just a question of whether it’s a promise of a good job when the official leaves the central bank, or if it's cash or gifts. It has to be something like that because no one could be so stupid to give away their silver for free.
For good measure, the Silver Managers also have at their disposal the ability to sell short, whenever necessary, COMEX contracts in unlimited quantities, further capping any price increase and enabling them to profit at the expense of the tech funds and other speculators. This is an added bonus (and proof of manipulation) that OPEC and DeBeers only wish they had at their disposal, but is bestowed solely upon the Silver Managers by the CFTC and the COMEX. They have done it over and over again. At the last price peak in September 900 million ounces were sold short on the COMEX. Simply through the brute size of their financial assets, a small group of rich dealers can dwarf all other players and hold down the price.
The silver manipulation is being run clearly under the jurisdiction of domestic regulatory agencies. The OPEC and DeBeers cartels are beyond the effective reach of U.S. law enforcement. There's not much the U.S. can do about these two foreign cartels. However, by charging more for oil OPEC is doing us a favor. It preserves oil for future generations by reducing demand. It is precisely the opposite in silver, where thanks to the Silver Managers' downward price manipulation, we are consuming much more silver than we would if the market were free. Lower prices stimulate demand, and that's exactly what is happening. Not only do we consume all current production (mining plus recycling) we continue to voraciously consume existing inventory, year after year. This is the biggest harm the Silver Managers are doing to all of us. By interfering with the law of supply and demand, the world is eating up silver much faster than if consumption was restrained by a true free market.
Invariably, the question of motivation comes up. With OPEC and DeBeers, the motivation is obvious. They are trying to extract every extra dollar that they can for their products. That's understandable and normal. What about the Silver Managers' cartel, what's their motivation? Not surprisingly, it's also money. It's just that the money comes to the Silver Mangers in a different form than selling production at a higher price. In fact, it doesn't come from selling production at all, since the Silver Mangers have no production, only financial shenanigans. The Silver Managers inflate silver supplies, via leasing, in order to profit from their resultant control of the price. The profits come from COMEX futures and options trading. When you have control of a market, by overriding the law of supply and demand, and you can buy and sell paper contracts in unlimited quantities, you know what the price will be today, tomorrow, next week, and next year. The Silver Managers have rigged every futures price move and options expiration for 15 years or more. They can afford to make nothing on the leasing game, because they have made many billions of dollars on the COMEX. This is their motive and payoff for their manipulation of the silver market.
But making big money on the floor of the COMEX is not the only motivation for the Silver Managers to continue the manipulation. In fact, it may not even be the prime motivation any longer. I think a new, more pressing motivation to continue the long term silver manipulation has emerged. What could possibly be more of a motivation than the prospect of continuing to rake in billions of dollars in a rigged market? Only one thing, in my opinion - the prospect of going to jail.
The minute this silver manipulation ends, as it must, it will become immediately obvious to the whole world that there was something radically wrong in the silver market. Silver will likely explode in price, at some point. There is little doubt that this must be the conclusion for many years of tampering with the law of supply and demand. You don't use up billions of ounces of inventory, accumulated over hundreds, if not thousands of years, and get a ho-hum price reaction when the leasing supply ends. You get a shock to the system. The natural reaction will be to ask why the price has exploded, after laying dormant for years. Too many people have been forewarned of the true nature of the silver market manipulation. Mark my words - when silver does finally blow, there will be government investigations. You can be sure the silver managers know this and will put off terminating the manipulation until the last possible moment. In addition, we are in the midst of an unprecedented wave of financial industry scandal with investigations spearheaded by the institutional crime fighter of New York, Attorney General Eliot Spitzer. This is decidedly not a good time to be an institutional manipulator.
The Silver Managers can stall and postpone the day of reckoning for only so long. That’s because they must keep coming up with a non-free market physical supply (leased silver) to artificially inflate the supply and keep the price down. We know silver inventories are finite. Non-free market silver inventories (leasable inventories) are even more restricted. They will run out with very little warning. The only way the Silver Managers don't go to jail is if they can engineer an unspectacular end to the manipulation, where prices rise orderly to a point where the price rise brings on primary silver mine production increases and discourages silver users from consuming. At this point that seems impossible.”
coinfool
"You broke the bonds and you loosed the chains; carried the cross of my shame, of my shame--you know I believe it..."
<< <i>Ted Butler always thinks silver is a Buy. He's like a stock broker in 1999.... >>
Rather than take that position, which is one of ignorance (not meaning insult, but rather that you just don't seem to be that familiar with his writing), why not take his position and refute it. You might be pleasantly surprized at your conclusions and the implicationsl The fact of the matter is that we have been running an approximate 200 million ounce per year deficit for a few decades now. Furthermore, the world has consumed 95% of total known inventory of silver in over the past 50 years alone. It took thousands of years to build up that inventory and it was used up in a snap. The implications are staggering. The structural deficit is massive
coinfool
"You broke the bonds and you loosed the chains; carried the cross of my shame, of my shame--you know I believe it..."
Fisher implies that the Fed is pretty much done raising rates. Fisher is new to his post and may have talked more broadly than he was supposed to; however, his statement was rehearsed, and the markets take it seriously.
We have long argued that the U.S. economy is too leveraged to allow the Fed to aggressively raise rates to curb the housing bubble and inflation that is creeping through the supply chain. Any forceful action would cause the housing bubble to collapse and throw the economy into a severe recession."
Bigtime direction indicator here folks.
<< <i>I'm sure that this was stated before, but as a reminder...there is more silver held in paper notes than there is actual metal to cover those notes. Is there another business where you can sell the same thing twice-never deliver it, and get away with it while the government turns a blind eye? >>
And the beauty is that they charge you storage fees for silver that doesn't exist ina storage facility that doesn't exist--how awefully nice of them.
coinfool
"You broke the bonds and you loosed the chains; carried the cross of my shame, of my shame--you know I believe it..."
<< <i>Silver Diatribe
Sorry for the long article. I offered this diatribe but attached the article because I thougt it to be well written and will at least arm most of those that read this article with a minimum of silver knowledge. Personally, I have owned a fair amount from time to time and sold it from time to time over the course of 25 years. I really do wonder how many people out there are still holding $8 silver, just waiting, begging, wishing.
I am not a silver bug anymore but here is MHO.
1. "World supplies are almost gone and demand is still rising" Nah, world supplies are not gone. There are huge silver deposits that run from Alaska to Peru (go ahead and read the article below) and all over the world there are huge known deposits. Most people have no idea how many silver mines across the world will crank up as soon as it becomes more valuable to sell. Don't forget...It's about the money!. Yes, it will take two or three years to get it into consumers/investors hands (physical holding) but if you want to see some silver become suddenly available, let that stuff hit $10-$12 and watch the markets become flooded with it. If you think this is speculation just ask someone what happened in '79/'80. Also don't discount that there is a tremendous amount of silver in personal households...everybody has some silver, across the world. When the price goes up, there will be grandmas literally standing in line to sell the silver service, circ morgans, picture frames, bracelets...anything silver. I know this is true because I saw it. Then after everyone has traded in their silver, it will likely settle back to $6/$7 where it's been for the last 20 years and like it did after the last rush. Don't get me wrong, there were people buying houses with the money they made from silver in '79/'80 and it was a good thing and it could happen to you. Silver at best has been a spot play.
2. Ok, if you have 10-100 oz bars...precious metals are measured in troy weight or 12 oz=1 pound so 100 oz - 8.33 pounds so you have 10-100 oz bars or 83.3 pounds/1,000oz of silver. But wait, you could just have the paper and let someone else buy and store the metal for you and give you a receipt. BUY NOW BEFORE IT TAKES OFF. Well, there is a lot to be said for that. If you can get $5/$6 silver then you should get some and keep it till there is an $8 spike and sell it then you could make money. Go to some of the internet sites that sell silver investments and you will notice they are not much different than car sales men...Last chance!, The Price Will Never be Lower, Make money while there is still time, BIG RED LETTERS, etc, etc. They are selling for commission, that's how they make money, actually that's how they get your money. And they want to give you a piece of paper for your silver, kind of like a deposit slip...yeah, there's a good idea (NOT). Ok, you're so you are not going to fall for that and you will take physical possession of your 1000 oz...shipping costs+commissions+service fee and your $6 silver is all of the sudden costing you $8.25 when it gets to your safe deposit box...oh yes, you will need a large one ($) for 83.3 pounds of silver. So, you still want an 83.3 pound nest egg to sit on (surely it will go up some day)?
3. Wait, you could just buy mining stock and make money at the source, you get a stock certificate and all's well. Wrong again, ever heard the story about having an opportunity to buy a stake in a silver mine in Utah where they are going to begin mining next year? Or the one about just discovering huge reserves in Montana, right near a railroad spur or the proven reserves, or the new mine in N. California with huge proven reserves and a limited opportunity to get in before it is offered to the public? The mining stock business is a big mess. I still have 300 shares of mining stock from 1990 and I think it is worth about $50 in total right now and I'm going to be buried with it. I know there must be someone that has made money from mining stocks but just for drill, everyone that has lost money in metals mining stock raise your hands.
4. Silver is grossly undervalued. Yeah, it is grossly undervalued, in fact in just the last 10 years it has lost about 30% of it's purchasing power just in adjusting for inflation. Still there is no increases because of demand or consumption or anything but it just stays flat, not accounting for the losses from inflation. So what if the price of physical silver increases 30% to that magical $10/oz mark, then maybe you are about even with other investments you could have made that did not make ANY money if you have had your silver for a few years...IF it rises 30%. Or, an even more rosy scenario, as one board member put it, just add a "0" to every thing from 20 years ago and that is the current price in 2005, then silver should be on the order of $70/oz...hummmmmmm...how could it just be $7/oz today and everything else cost 10x more? It must be an international, government conspiracy, yeah, that's the ticket. Nah, it's that reality thing...silver is worth $7/oz right now because that's what people are willing to pay for it, that is what is it worth and has been for a loooooooong time. You could do much better looking for extra leaf Wisconsins in bank rolls.
I could go on but I doubt people will read much further and still have room left for the article below. Oh, yes, don't forget to read the disclaimer at the end of the article.
SILVER
"An Economic Geologist’s Perspective"
By
Nigel H Maund
BSc(Hons)Lond., MSc, DIC, MBA, MIMMM, SEG
Consultant Economic Geologist
Mineral Consulting International (NZ) Ltd.
Investor Summary
The fundamentals behind the world silver market are looking increasingly strong. Silver bullion stocks of central and investment banks are at an all time low, or, in many cases, totally depleted. The demand for silver, especially in the diverse high technology and medical market segments (40%) is steadily increasing, as is the investment market segment in silver coins and bullion. The analogue or standard photographic segment, a substantial industrial market for silver, diminished in the last calendar year by a matter of a few percent only, despite the much vaunted demise of the silver market posed by advent of digital photography. A substantial proportion; i.e., 70% of the "Old Silver Scrap" market, comprising some 22% of the total market supply, was provided through the recycling of photographic film and paper. Hence, demand for silver in the photographic market is 85%, met through recycling within this segment. Furthermore, the "take off" of the digital camera market is restricted, in large part, to the young and relatively affluent (professional and young) market segments in developed economies. To make full use of digital photography, one requires a computer and/or printer infrastructure, plus expensive printer cartridges, re chargeable batteries, and photographic papers, that are, collectively, generally beyond the pocket of the mass market. Therefore, it seems unlikely that digital photography will become a substitute for mass-market traditional photography in the near future. Given the growth in general affluence of the Asian markets, the mass market for conventional photography is likely to expand at a faster rate than the growth of digital photography, offsetting any decline in developed countries. Therefore, to analyze the silver market one has to see outside the photographic market segment.
In contrast to gold, where the bulk of mine supply is derived from primary gold producers (i.e.; those mines mining gold as the principal product), the structure of the silver supply side from mining is totally different, and remarkably inflexible and "tight". Silver is primarily supplied as a secondary by product of base metal (copper, lead and zinc) mines, or, as a co – product with base metals in the tetrahedrite – silver sulfosalt dominated deposits or from epithermal gold - silver deposits. Standalone silver mines comprise one of the smallest market segments in the entire metal mining industry. Indeed, in the USA and Canada there are only two significant primary silver and silver co – product producers: Coeur d'Alene Mines and Hecla Mining Corporation, which together supply the "princely" total of 4% of world silver demand or 24 M oz. If one factors in all significant co – product and primary silver producers worldwide, the world mine production figure for these deposits amounts to less than 10% of world supply. This is an amazingly tight market geared to only incremental increases in silver demand. Should investment demand for the metal suddenly increase, the mining industry could not respond. Banks, Metals Traders or Investment Houses have virtually no silver stocks to draw down. Therefore, their influence on the market could be considered insignificant. In short, the silver supply side has virtually no scope to adapt to any significant change in demand. Besides, it would take a price of over US20 per fine ounce to encourage people to sell, "en masse", the family silverware. Even then a "fire sale" of silverware would not necessarily bring down the silver price.
Low silver prices for much of the last 40 years, apart from the short lived Bunker – Hunt market spike around 1979 – 1980, when an ill-advised effort was made to cartelize the silver market, have meant that mining companies have had virtually no incentive to look for "standalone", or primary, or significant co – product silver resources. Hence, very few new resources of silver have been found, apart from those discovered as result of base metal, gold or tin exploration. Whilst huge potential exists to discover substantial primary silver resources, for the longer term, from the following deposit types: epithermal vein; porphyry copper – molybdenum related stockwork vein; and, vein array systems worldwide, the mining industry will require a sustained silver price, probably in the range from US$9 to US$12 or higher, to explore for, and develop, such systems. Right now the mining companies are very wary of silver's prospects, given its past 30 year history, and remain to be convinced of the metals long term prospects, given its "Cinderella" image within the precious metals market.
Should a major economic downturn affect the base metal markets, due, say, to a collapse of the Stock Markets, Bond Markets and Real Estate Markets, with the broader implications of bursting the Chinese – Asian market bubble simultaneously, then several of the base metal miners may cut back on production, or be forced to high grade their deposits at lower production rates. Faced with overvalued stocks, bonds and real estate, and a collapsing US dollar, rising oil prices (towards US$ 50 – 55 by end 2004), accelerating inflation, and, finally (as the Fed's hand is forced), accelerating interest rates, the World's No 1 economy, the USA, looks to be headed for the "Economic Train Wreck of All Time". This will bring the Global Economy, including China, to its knees. Under this scenario, investment demand for all the precious metals could quite simply take off to levels hitherto thought improbable.
Given the foregoing scenario, silver producers would have absolutely no chance of meeting such demand, unless the silver price became high enough to encourage the base metal miners to expand their operations on the basis of earning large silver credits. The primary silver producers are too small and limited in number to make anything other than a marginal impact on the market. It takes years to find, evaluate and develop a new mine of any size. Obviously, small vein mining operations, such as those in the Idaho silver belt, or at Slocan in British Columbia, could be rapidly brought on stream. However, their contribution to supply would be insignificant. Should the above catastrophic scenario not eventuate, the fundamentals for silver are the strongest they have been for 25 years, and, therefore, silver is headed higher come what may.
Finally, it is worth noting that the worldwide silver market currently (calendar year 2003) consumes 880 million ounces of the metal annually, of which 714 Moz can be considered a real supply minus recycled photographic waste. Given an average silver price of US$ 5.25 per fine ounce, this values the world silver market at a mere US$ 3.8 billion or significantly less than 10% of the present market capitalization of PEPSICO, and equal to approximately 10% of the worldwide gold market, which in turn is still less than 50% of the market capitalization of MICROSOFT Corporation.
Introduction
Silver has for much of the last Century been the "Cinderella" of the precious metals sector; i.e., very much the poor relation of its more glamorous, and less geochemically abundant, companions gold and the platinum group elements. Silver has been a monetary metal for nearly as long as gold; since first evidence of its active smelting, dated at around 3,000 BC, was discovered by archaeologists in the Eastern Mediterranean and Asia Minor. Indeed, there were periods in European and Chinese history where silver was more highly valued than gold. This merely reflected the supply and demand equation existing at that time, and did not accurately represent the geologic abundance of these metals, as subsequent events have proven.
In the early and middle years of the 20th Century silver, and latterly gold, have been demonetarized by the International Banking Cartel (controlled by the huge European Banking Houses such as the Rothschilds, Warburg's, Baring's, Hambro's, and, more recently, powerful US based banks such as J P Morgan, Kuhn Loeb, Salomons, Bear Stearn's, Goldman Sachs, Shearson Lehmann and Rockefeller's Chase Manhattan – Citibank) in favour of increasingly unrestrained paper issuance (FIAT), and, in the "Computer Age", digital money. During the latter part of the 20th Century; i.e., since 1982, unrestrained lending and monetary expansion have accelerated at a frenetic rate. The USA's Federal Reserve Chairman, Sir Alan Greenspan, will undoubtedly go down in history as the most profligate (and seemingly reckless) monetary expansionists of all time. His legacy can only bode well for the precious metals.
The Supply and Demand Equation
The key markets for silver are Industrial Applications (40%); Jewelry and silverware (31%); Photographic film (22%); and Coins and Medals (4%). The greatest immediate threat to the silver market comes in the area of photographic film, where digital photography has replaced conventional photography in developed countries such as the USA, Canada, Europe, Japan and Australia. However, as noted in the Investor summary, the take off of digital photography is limited by the fact that overall costs include a higher unit cost when compared to conventional equivalents due to the need for re – chargeable batteries, printers, photographic paper, computers to optimize picture production, etc. The mass market, developing in Asia, in particular, will largely opt for conventional photography based on overall cost. Digital photography will remain the preserve of the wealthy and professional, who can utilize to the full the technical advantages afforded by digital photography in their work. To date, the growth of digital photography has been largely confined to the select segments within developed nations: the USA, Canada, Australia, Europe, and Japan.
The photographic market makes a very modest demand on the silver market, because most (85%) of the silver used in this market is recycled as scrap. In this respect, this segment of the market is almost "a zero sum game", and, therefore, has far less impact on the supply and demand equation than is currently thought.
During the 20th Century, whilst silver was being demonetarized, new markets developed which more than counterbalanced the decline in coinage fabrication. Silver has unusual physical and chemical properties, including its high malleability and ductility, and more importantly, silver displays the highest electrical and thermal conductivity of any element known, and possesses an electrically low contact resistance making it a very useful metal in some electrical equipment. Furthermore, silver displays an ability to endure extreme temperature ranges. Silver's best-known characteristic is its sensitivity to and very high reflectance of light, apparent in camera film and freshly minted coinage and polished silverware. Given these important characteristics, it will come as no surprise that silver has become increasingly important in "Hi Tech" applications and is now an "industrial metal" rather than a precious metal in the strictest sense.
The "Hi Tech" applications of silver in industrial markets are "niche markets", in which silvers’ unique physical and chemical properties mean that the threat of substitution by cheaper materials is highly unlikely, if not scientifically impossible, given present technology. These markets are very likely to be growth areas, both in developed and developing countries, because of their self-evident value in society in very significant applications. For an overview of these uses the reader is referred to the website of the Silver Institute.
Coinage, jewelry and silverware are potential growth areas, in particular in the Asian markets, again due to silver's great beauty as a polished metal, and in its function as the poor man's precious metal for those who cannot afford to buy gold. As FIAT currencies meet their "Gotterdammerung", people will increasingly turn to real value, as all other asset classes go into serious decline. The limitation here lies in coinage and investment ingot fabrication, which comprises a mere 4% of the market, and is confined to Mexico, the USA, Canada and Australia. This market cannot be suddenly expanded to meet increased demand, should the need arise. Besides, silver supply is largely “spoken for” by the Industrial and Photographic markets in the form of set contracts.
Originally, silver was mined largely as native silver from supergene enriched, high grade, vein deposits. In these deposits already high grade silver sulfosalts are weathered and oxidized, near the present land surface, to reduce the silver to its native form and upgrade the existing deposit to "bonanza grades", of the order of thousands of grams per ton. Such deposits were the target of medieval mining activities throughout Central and South America, Europe and Asia. By the 17th and 18th Centuries, the majority of such deposits had been worked out, in these areas. This mining activity made silver the precious metal of the day owing to its relative abundance, when gold was relatively scarce. However, from the 1850's onwards successively larger gold districts were discovered: as placer gold in California and New South Wales; and as placer, deep lead and bedrock vein deposit gold mines in Victoria, Australia; the placer deposits of the Klondike in Canada, and, during the 1890's, the mighty Proterozoic (fossil) placer gold deposits of South Africa (more than 110,000 tons of gold metal) and the bedrock, vein array, deposits of goldfields of Western Australia, in particularly "the Golden Mile" at Kalgoorlie. Mining activities at these locations enabled countries to move towards a gold and silver standard as a basis for money.
During the early years of the 20th Century significant deposits of lead – zinc were discovered in the Central USA in the Ozark Hills and Tri – State districts, and in New South Wales, Australia, at Broken Hill. These mines all produced significant by product silver, largely from argentiferous lead ore, galena, at a time when supply of silver from primary resources was diminishing. This trend gathered pace in the immediate post WW2 era during "the golden days" of mineral exploration in the late 1950's to early 1970's when significant, and often large resources of carbonate hosted lead – zinc deposits in the USA and Canada (at Pine Point), and in Queensland, Australia, the giant Mt Isa and satellite Hilton deposits, were discovered. Furthermore, the huge Sullivan lead – zinc silver deposit was discovered in British Columbia. Progressively, the main source of silver supply shifted from primary silver producing vein systems to become a by product of large base metal mining operations. Increasingly significant quantities of silver were also being produced as a by product of the huge porphyry copper and molybdenum mining operations in the southwest USA, British Columbia, and South America, as well as from the expanding number of primary gold mining operations.
Supply of silver for calendar year 2003 equalled demand at 880 million ounces, and was comprised as follows in order of significance: Mine Production (68%); Old Silver Scrap (22%); Net Government Sales (9%) and Net Disinvestment (1%). There was no Producer Hedging in 2003 for obvious economic reasons.....why hedge when the only way for the silver market is up? It could hardly go much lower than it has been. However, as prices of silver rise, one may expect silver companies to hedge forward sales, in coming years, to lock in profits. Although, having said this, the USA's most famous primary silver producer, the great Coeur D'Alene Mines, remains proudly a "non-hedging company".
World Mine Supply
During 2003, the worlds’ 10 largest silver producing nations were as follows in order of production: Mexico, 93.8 Moz. (million ounces); Peru, 89.2 Moz.; Australia, 60.2 Moz; China, 46.8 Moz.; Poland, 44.3 Moz.; Chile, 41.6 Moz.; United States, 41.5 Moz.; Canada, 41.0 Moz.; Russia, 33.8 Moz.; and Kazakhstan, 22.9 Moz.
The worlds’ 10 largest silver miners are as follows: Industrias Penoles (Mexico) 48.4 Moz. (by product silver from lead – zinc operations at Fresnillo); KGHM Polska Miedz (Poland) 43.7 Moz (by product silver from copper operations); BHP Minerals Ltd. (Australia) 42.7 Moz. (from Cannington bonanza silver – lead - zinc mine); Kazakhmys (Kazakhstan) 19.5 Moz. (with gold mining); Grupo Mexico (Mexico) 19.0 Moz. (some primary silver operation as well as by product lead – zinc); Rio Tinto PLC (UK) 18.3 (by product of porphyry copper and lead – zinc mining operations worldwide) Moz.; Barrick Gold Inc.(Canada) 17.0 Moz. (by product of gold mining operations); Coeur d'Alene Mines (USA) 14.2 Moz (primary silver producer).; Polymetal (Russia) 13.3 Moz. (by product of lead – zinc and tin mining); and Xstrata (Mount Isa Mines) Australia 12.0 Moz (by product of lead – zinc silver mines at Mt Isa).
Surprisingly, Newmont Mining Ltd, a major worldwide gold producer, is only the worlds’ 13th largest silver producer (9.9 Moz), largely from its operations in the Carlin mining camp in Nevada, where silver is produced as a by-product of gold mining operations. Newmont has no major primary silver operations. Hecla Mining Company, a substantial primary silver producer, is the world's 15th largest producer with 9.8 Moz. This company operates substantial primary silver operations as well as having a significant and developing gold portfolio.
In terms of mine production, the following is a breakdown of where current mine production is sourced:
Ø Lead – Zinc deposits (mostly Mexico, epithermal lead – zinc - silver deposits, and Cannington, Mid Proterozoic (geologic age), lead – zinc – silver, sedimentary exhalative deposits, and Chinese deposits, which are largely marginal lead – zinc – silver operations) 31%;
Ø Copper deposits (primarily the Kupferschiefer of Poland and porphyry copper mines) 25%;
Ø Gold deposits (in particular Carlin type and Epithermal deposits) 14%
Ø Primary silver deposits ((in particular "Idaho type" tetrahedrite (silver rich species: friebergite) deposits and epithermal silver deposits)) 28%.
The silver market is dominated by a few large deposits such as those in Fresnillo, which comprise a part of the 800 km long Mexican lead – zinc – silver belt, and the large Polish sedimentary (copper shale or "Kupferschiefer" deposits), or the Mid Proterozoic age, bonanza, lead – zinc – silver deposit at Cannington, in the world famous Mount Isa belt in Queensland, Australia. During calendar year 2003, Cannington mined ore at an average grade of 544 grams per tonne silver, 11.9% lead and 4.5% zinc, and is, at present metal prices, a bonanza deposit. The mine produces 34.85 million ounces of silver per annum from argentiferous galena and friebergite ore. Another major silver producer, for more than a century, has been the giant Potosi mining camp in Bolivia.
With the exception of Cannington and Potosi, these companies are driven by base metal prices, and not silver prices, and so they are unlikely to expand production unless the silver price rises to levels where silver credits comprise a significant proportion of overall profits. Therefore, as far as silver is concerned, they are "demand inelastic". However, these companies have considerable exploration potential on their own doorsteps, but are in no rush to develop this known potential. They are market driven by their primary products, the base metals.
In terms of the capability to expand production at higher silver prices, one has to look to the primary silver companies, such as Couer D'Alene Mines, Hecla Mining Corporation and the like. These companies are highly experienced in sourcing and defining epithermal, stockwork systems and vein – tetrahedrite type silver deposits, in the USA, Canada and Central and South America. There is tremendous scope for exploration, throughout the Canadian and US Rocky Mountains, to discover additional primary silver resources.
Low silver prices have meant that "Silver States", such as Idaho, have largely gone unexplored for decades. Sterling Mining, a primary silver exploration company, has acquired the highly productive, and formerly high grade (800 g/t + Ag ) Sunshine Mine in Idaho. This mine extracted silver from a swarm of friebergite and silver sulphosalt bearing veins for a period of approximately 100 years. The Sunshine District has much undiscovered potential, and Sterling will be a company to watch as it gets underway with the re – evaluation of this major silver mining camp.
Klondike Gold is now taking a good hard look at the silver resources of the Slocan lead – zinc – silver camp in BC, and should be able to go rapidly into modest production once silver rises above US$ 6 – 7 / ounce. It has a large choice of potential medium to high-grade lead – zinc – silver veins to explore and possibly develop.
In summary, the key issue in respect of mine supply of silver is that primary silver producers comprise a mere handful of professional mining companies, of which the USA has the two most famous; i.e., Coeur d'Alene Mining and Hecla Mining Corporation. If one factors out the 166 Moz of silver recycled from photographic waste, then of the remainder, which can be considered the real silver supply; i.e., 714 Moz, the two major primary silver producers, Coeur and Hecla, supply less than 4%, or 24 Moz. If the major Cannington deposit is factored in as a co – product silver deposit production stands at only 8.3%, or approximately 60 Moz. This is a startling fact! In other words, the real silver supply side is incredibly heavily skewed by production from the base metal and gold miners. A figure of 20% production from primary, or co – product producers, would be considered a tight market but anything less than 10% implies we are dealing with a situation which could lead to a major price spike should demand suddenly accelerate.
Should the demand for silver accelerate due to increased conventional photographic usage in Asia (China and India) or investment demand for silver rapidly accelerate (more likely), then the market is almost totally inflexible in respect to its ability to respond to any sudden increase in demand. Furthermore, the lead time required to explore, evaluate and develop new mines varies from 4 to 7 years depending on politics, economics, infrastructure, geography and financing. Given silvers’ past lackluster performance, and poor market perception, very few lending institutions would be inclined to finance the development of a substantial primary silver deposit. Therefore, any new production would have to financed internally by those companies sufficiently cashed up or with the collateral and understanding of the market necessary to finance the development. Given these constraints, it seems unlikely that much in the way of new silver production will come onto the market unless the silver price rises to allow companies like Mines Management to develop their large low grade silver resource. Even then, no new silver will come onto the market for 2 to 3 years whilst the project is being constructed.
Should the silver price advance significantly and stay above US$ 8 – 10 per fine ounce, then one may expect existing silver miners and silver exploration juniors to significantly expand their exploration activities throughout the Rocky Mountain and Andes chain from Alaska to Chile. This 7000 km chain has huge epithermal silver potential. Similar potential exists in the mountain chain extending from the Carpathians in Eastern Europe through Turkey and the Caucasus to the Zagros mountains, Tien Shan and Himalayan mountain chain. Additional significant potential occurs in the Ural mountains of Russia associated with Hercynian – Variscan tin – molybdenum granites and epithermal - porphyry systems.
A Very Preliminary Look at Silver Miners of Interest to Investors
For those investors looking to buy shares in a primary silver mining company on home territory; i.e. within the USA, and well managed with an excellent balance sheet, one can do little better than look at HECLA MINING COMPANY. This company was established in 1891, and is Coeur d'Alene's smaller brother, although of equal vintage. Both companies operate in Northern Idaho's silver valley, as well as throughout the Rockies and South America. With a respectable annual production of 9.8 Moz of silver, at the very low cash operating cost of US$ 1.43 / fine ounce, this is a very profitable concern. Furthermore, Hecla has produced 204,000 ounces of gold during calendar year 2003 at a very respectable cash operating cost of US$ 154 / fine ounce. The company has a good balance sheet, is virtually debt free, is very well cashed up and well managed. Furthermore, HECLA has excellent exploration potential. In view of these facts, HECLA will be the subject of the first fundamental report on significant silver producers during August as the writer feels that the company merits serious consideration. For the interim, Investors are referred to HECLA's website for further details.
As an Economic Geologist the writer has to profess to having an emotional soft spot for Coeur d'Alene Mines. This company is one of the USA's mining legends and is North America's most famous silver miner. Coeur will also be the subject of an in-depth fundamental study during August, which will be presented on the writers’ own website to be launched in early August.
NHM
11.07.2004
Note:
The author would like to thank Dr Gary Matthews for his very helpful contribution concerning the photographic market for silver.
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Good article. I read all of it, and based on the additional information that I possess, I am not convinced of your position. It is missing many key elements, which of course would take a book to address. Read the posts I've put out about the case for silver by Ted Butler and the fundamental issue is that we have been running a structural deficit for 15 years, have used up 95% of the worlds silver amassed over thousands of years in just 50 years, have become a purchaser of silver (US) having run out of our 10 billion ounces once owned, and it will only get tighter. Manipulation is the key to low prices and Mr. Butler has shown great evidence for his case of manipulation. It is still the worlds best kept secret. Silver will explode and will continue to steadily grow in value in our lifetime, once the dealers no longer have the strenth to keep the lid on the price--then kaboom!
coinfool
"You broke the bonds and you loosed the chains; carried the cross of my shame, of my shame--you know I believe it..."
<< <i>1950's? NO. 1960's? NO. 1970's? Bingo. Any relation to removing the gold standard? Hmmm
One could make the arguement that home prices rose in the 70's as a result of inflation and demographic demand. The first baby boomers were turning 30 in 1976. This is the age at which home ownership first takes place.
I do think that precious metals have a place in anyone's investment portfolio. I just get nervous when I hear people say it is the lock, homerun, blockbuster, investment of the century. That it is impossible to lose money in metals and if you dont load yourself to the gills then you are a fool. >>
NOTHING IS A SURE THING. There are just those things that are more sure than others--never put all of your carnitas in one tortilla. It's just a great opportunity.
coinfool
"You broke the bonds and you loosed the chains; carried the cross of my shame, of my shame--you know I believe it..."
We have had several looks at Silver availability and potential manipulation, what about Gold? There seems to also be some leasing etc. to stay covered in this market as well.
Here are just a few facts, please add your own.
Several sources accord amount to the total Gold ever produced to be approximately 119,000 metric tons (3.8 billion troy ounces).
Current Gold production is approximately 2500 ton a year as of 2004
One writer has total Gold ever mined at 118,571 tonnes with 10,854 tonnes attributed to total loss.
The physical inventory which can be used to settle either the futures market or the OTC derivatives market has 6 million ounces of gold in eligible and registered form. Only 1.7 million ounces are currently in eligible form.
Total open interest currently at the Comex is 272,748 contracts of 100 ounces each. If you multiply those two numbers and then again by a cash price of $420 you get the futures market total open interest as US$11.4 billion. The OTC gross market has a value of $32 billion.
From the article..."Should the silver price advance significantly and stay above US$ 8 – 10 per fine ounce, then one may expect existing silver miners and silver exploration juniors to significantly expand their exploration activities throughout the Rocky Mountain and Andes chain from Alaska to Chile. This 7000 km chain has huge epithermal silver potential. Similar potential exists in the mountain chain extending from the Carpathians in Eastern Europe through Turkey and the Caucasus to the Zagros mountains, Tien Shan and Himalayan mountain chain. Additional significant potential occurs in the Ural mountains of Russia associated with Hercynian – Variscan tin – molybdenum granites and epithermal - porphyry systems."
I believe that is a true statement of fact. I also anticipate that there may well be a sustained spike in silver, maybe in the next few years. I also believe that that spike will settle again because there is plenty of silver in the world to be mined. So, in my mind there does seem to be the potential for a play and it may be in the next few years but it is not a given nor will it be a freebie, there is plenty of risk and for anyone that doesn't recognize that will meet their fate accordingly.
Regarding consipiracy and supply v.s. demand...It does not appear to be economically effective to mine silver as a sole resource right now and as noted earlier in this recent thread, most silver is a byproduct of other metals being harvested from ores. To me it seems very sensible that supply meets demand, a primary rule of resource price prognostication. I postulate that supply does meet demand for silver, once again, it is that reality thing. Fine silver is worth $7 and oddly enough, that is what it sells for. I do not believe there is any world conspiracy to manipulate silver but there may be plays going on here and there because after all, we did see the Hunt brothers show. Conspiracy theories may sell newsletters and provide fodder for talk shows but supply equals demand and the price will always reflect that reality. If you have too much of something, it's cheap...if you don't have enough, it's more expensive. Remember Ockham' Razor...In the presence of competing theories, the simpler of the two is more likely to be correct. So, given conspiracy v.s. supply=demand, I choose supply=demand, that reality thing. If the demand increases, there will be a very serious effort to "get the money" as in mine more silver. It is ALL about the money. If the money was there to make mining silver even mildly profitable, you and the rest of the world would be covered up in silver. Who knows, there may be some big secret that the market doesn't know...things that make me go hummmmmm. But it is a good thing to flesh this silver thing out amongst us in this forum so we all have at least a common understanding. MHO
Enjoy
I don't think it matters in any case. In 1980 the ready industrial supply of silver was almost 10 times what it is now, but speculation drove it up to $50 an ounce anyway. There was never an actual shortage, only a delay in contract delivery due to everyone being caught off guard. Everything is different now. I think people tend to forget that silver is a precious metal because it is RARE. According to the USGS as of 2003 the world supply of silver metal was 270,000 metric tons. That's less than half a troy ounce for each person in the United States. What happens when the general public decides they want a few silver coins to put away as an investment?
270,000 metric tons x 35,200 oz = 9.5 billion oz.
9.5 billion oz / 280 million US residents = 34 oz per person.
I doubt everyone in the US would want silver but if 10% do, then that would be about 20 pounds each.
They said we would run out of oil 30 years ago and we didnt. I dont think we will run out of silver either. It may take more time to establish and develope a mining concern, but if it is profitable then there are hundreds of mining companies that could convert and be up and running in much less time than you think.
I really hope silver does make a run. I just love opportunities to make money
Knowledge is the enemy of fear
OK Coofool, I will admit that I have not studied Ted Butler's analysis and entertainment enough to have ever noted a Sell recommendation.
Obviously you have. Pray tell, list a few of silver's sell signals from Ted Butler.
270,000 metric tons is the estimate of total silver on the planet including reserves that have yet to be mined or are unrecoverable because they are trapped in seawater, underground, etc. Sometimes reading the USGS numbers is difficult.
silver in the ocean and the nodules lying on its bottom. This is especially interesting in
that there is evidence that gold is removed from the ocean by some life forms and is less
soluble than silver. This would seem to imply that there is well less than twice as much
silve in the world (excluding the interior) than there is gold. In light of this it might not
be a foregone conclusion that seeking silver in the Rockies or Andes would produce much
product. Obviously if there were abundant amounts of easily extracted ores it would al-
ready be in production.
While most silver is a byproduct of base metal mining it's also important to note that it
is often a relatively low income producer for these mines so higher prices for silver would
have little impact on base metal prices while higher base metal prices would have an im-
pact on silver prices. Conversely if base metal prices were to drop than silver production
would also fall.
<< <i>Furthermore, the "take off" of the digital camera market is restricted, in large part, to the young and relatively affluent (professional and young) market segments in developed economies. To make full use of digital photography, one requires a computer and/or printer infrastructure, plus expensive printer cartridges, re chargeable batteries, and photographic papers, that are, collectively, generally beyond the pocket of the mass market. Therefore, it seems unlikely that digital photography will become a substitute for mass-market traditional photography in the near future. Given the growth in general affluence of the Asian markets, the mass market for conventional photography is likely to expand at a faster rate than the growth of digital photography, offsetting any decline in developed countries. Therefore, to analyze the silver market one has to see outside the photographic market segment. >>
And you need very expensive dark room/photo processing equipment, chemicals, and paper to develop and print film. Of course very few people own those things. We rely on commercial photo processors, who also print digital photos. I find it hard to give much credence to anyone whose financial analysis is this thin. In fact, it sounds like someone grasping at straws to support his case.
CG