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But…what about silver?

30 April 2021

Well, well, well, it’s nice to see so many of you again!

And I’ll admit, it’s nice to be back in the saddle too.

A decade of daily writing will give you twitchy fingers if they don’t find themselves tapping away at a keyboard.

Before we delve into today’s topic, I want to say thanks for writing in. I haven’t had the chance to respond to the majority of the emails. I was surprised by the sheer number of them!

The thing I appreciate most, was the frankness of your thoughts. Some people shared their personal history investing with gold. Others shared their concerns on the market.

One person pulled me up on last week’s cheeky headline. Telling me that gold did not go ‘boom’, rather it stumbled higher.

What can I say? You caught me *wink wink*.

Not only did I get your attention, but the crux of last week’s letter was about how headlines are utterly useless at informing you. One person’s ‘boom’ is another person’s ‘blah’.

If there’s a topic you’d like me to cover drop me a line here and pop Ask Shae in the headline.

As for today’s topic? Well, that comes from the raft emails I was sifting through. But one stood out with four simple words: ‘no mention of silver’.

Settle in folks, we’ve going some ground to cover.

The other precious metal

Silver is irreplaceable. I utter that even as an advocate of sound money that favours gold over Ag.

But there’s a reason why.

Silver is more than just ‘stacking’. It’s more than a social media hashtag. It’s a critical element to our way of life.

No silver, no electronics. That means no computers, no phones, no light switches or wires. You can rule out headphones, car electronics solar panels, TVs, microwaves and DVDs.

The natural antibacterial products of silver make it highly suited to medical equipment. You’ll find silver in surgical tools, topical creams and even wound dressings.

And we didn’t even scratch the surface of its wide industrial use.

To boot silver can also be a store of wealth on top of its many physical applications.

The point is everything gold can do, silver can do for a fraction of the cost.

Silver’s utility is why it’s widely sought after…

Don’t fall for narrative over arithmetic

Silver isn’t just sought after by investors.

Industry gobbles up 50% of all silver mined. Another 20% is found in jewellery. That leave’s around 30% to be shared among silverware, photography…and investors.

Given its wide variety of demand, you’d think silver could easily fall into a ‘shortage’, right?

Surely if demand is so strong it’s only a matter of time before the supply dries up and we start pulling apart old electronics to unleash the riches from within.

These thoughts are only compounded if you fall down web holes that favour narrative over arithmetic.

The thing is, there is no silver shortage.

The narrative is just because I can’t buy silver in XYZ location doesn’t equate to shortage. There’s plenty of silver available, you just need to know where to look.
Yes, there have been supply disruptions to northern hemisphere markets. But the global market for silver was in a surplus for 2020, not a shortage.

Hear me out.

See, it’s easy for us at the bottom of the world to forget just how disruptive COVID has been for everyone else. Aside from Melbourne’s brutal months long lockdown, Australia got back to business long before many other nations did.   

Not only did the entire mining sector in Australia avoid shutdowns, but our refineries stayed open.

Long time clients of ABC Bullion and ABC Refinery know we kept serving and pouring gold throughout the pandemic meant many international companies shutter their doors. Refining 85% of Australia’s silver ore helps.  

In fact, Australia’s ability to stay open is what saw our precious metals fill critical supply gaps in the good for delivery market to ensure for Comex settlement.

Other parts of the world were not so lucky.

For starters there’s were numerous shut downs in Latin America countries which affected the dominant global producers of silver.

Large chunks of Mexico, Peru, Chile and Brazil’s mining sector moved to ‘care and maintenance’ for weeks.  

Preliminary estimates suggest Latin American silver production dropped 21% for 2020. 
Yet global production of silver only declined by 2.4% for 2020.

Not only that, but northern hemisphere refiners were also forced to close in the early months of the pandemic. Meaning that lumps of ore were sitting around waiting to be refined up north.

All of this compounded the appearance of a shortage. But it’s not ‘shortage’ is about accessibility based on your location.
While investment demand for silver certainly climbed, it was offset by global jewellery sales tumbling more than 20%.

As Western investment demand for silver increased, it was again met with selling in Eastern markets. 
India’s silver jewellery market dived a massive 85% during 2020.

Their local silver coin and bar demand wasn’t spared either. Dropping from 57 million ounces in 2019 to 9 million ounces in 2020.

The numbers get a little murky from here because there are a handful of reports suggesting many silver bars and coins were sold by Indians to see them through the pandemic.

The short version is, where demand was strong in one sector of the market, it was met with selling in another pocket. Even then, global supply of silver outpaced demand.

Source: Metals Focus; Bloomberg; World Silver Survey 2021

Another thing to remember dear reader is that silver has a strong scrap market. Often 20 – 25PER CENT of all silver comes from scrap.
You can see in the chart on the right that the scrap silver market tends to follow the price of silver.

The higher the price goes the more scrap silver comes into the market. All of which increases the supply of the metal.

Only part of the story

Quite frankly, silver doesn’t need web whispers or shouty headlines to encourage consumption of it.

There’s a couple of long term trends driving that will push the price of silver higher in the years to come.

Industrial demand is growing rapidly…the ore grade is falling…and not enough Ag has been found in recent years.

I’ll go into more detail next week.

Until next time,
Shae Russell,
For ABC Bullion
Group Communications Manager, Pallion Group