A report recently released at the time of publication by the Silver Institute stated that global silver deficits had reached 12 years running. The article acknowledged that one year of deficits might not seem especially concerning on its own, but argued that their cumulative impact could affect future silver supply and price. It noted that deficits across the preceding 12 years totaled about one billion ounces. Silver had not yet become scarce, it suggested, because an unknown quantity of above-ground reserves had been drawn down to meet demand. The article cautioned that it was premature to assume silver would be unavailable at any price, while predicting that annual deficits, lower-grade ore, and rising mining costs would eventually increase the metal’s price, possibly substantially. It then offered additional points for consideration:
- At the time of publication, the gold-to-silver ratio was approximately 75 to 1. Although it was not at its historic peak, reported as 98 to 1 in 1939, the article said it was not far below it. At that time, silver appeared discounted both in absolute terms and when compared with gold. Some observers might cite the historic gold-to-silver ratio of 16 to 1, but Atlanta Gold & Coin stated it did not assign much importance to that figure because the price relationship had been fixed. The article nevertheless expected the then-current spread between gold and silver to narrow over time.
- At the time of original publication, the article described the following: A search of the S. Mint’s website showed that 42,880,000 Silver Eagles had been minted through November of 2015. The article considered it likely that output would exceed the prior year’s production of 44 million coins. It noted that the Mint did not release Silver Eagles until mid-January that year and had experienced several shortages. Without those factors, the article argued, production through 11 months would already have set a new record. Its point was that demand for Silver Eagles showed no indication of easing. Annual demand, it said, continued to surpass the preceding year’s record totals, and the article expected that pattern to continue while silver prices remained depressed, though it suggested that might not last long.
- Based on this report, information available through the first quarter of 2015 (with the original article noting it would update when more recent information became available) put the breakeven price for silver-mining companies at $17.16 per ounce. At the time of writing, silver was approximately $14.35/oz. The article reasoned that mining companies would probably close unproductive mines and/or reduce silver output until prices rose. It predicted that this would ultimately create silver shortfalls and, in turn, upward pressure on silver prices.
- This chart from the Silver Institute illustrated the annual quantity of silver used for investment, specifically coins and bars. Although the data was available only through 2014, the article stated that 7% to 29% of yearly silver-mining production went to investment uses. It further noted that most silver mined annually was used industrially. Unlike gold, much silver used for industrial purposes is permanently lost. For that reason, the article concluded that the above-ground silver available for investment was not significantly greater than the above-ground gold supply.
- The article stated that silver had peaked at $50/oz in 1980 and again in 2011. At the time of publication, it was $14.35/oz. It characterized the price in 1980 as manipulated by the Hunt Brothers’ effort to corner the silver market and therefore assigned little significance to the record set in 1980. By contrast, it viewed the high of $50 reached in 2011 as legitimate, even if momentum investing accounted for much of the increase. The article said few investments could be bought at a fraction of their all-time high and concluded that, while no one knew silver’s bottom, upside potential then appeared greater than downside risk.
Atlanta Gold & Coin stated that it could identify many additional reasons for its bullish view of silver, but regarded the five points above as its most persuasive reasons for investing in the metal.
At the time of original publication, the article described the following: From an investor’s perspective, the article described one positive development: the exceptionally high premiums seen in August, September, and October had eased by the time it was published. Premiums could still have been somewhat above historical averages, but the article said that was unsurprising while silver was hovering around $14 per ounce.
At the time of original publication, the article described the following: The original article expressed hope that readers found that day’s discussion useful and invited them at publication to like Atlanta Gold & Coin on Facebook, follow it on Twitter, or sign up for an RSS feed for then-latest gold and silver market information.
