Daily Archives: May 10, 2016

(Chapter 1, 2, and 3 synopses and thought can be found here)

If you like statistics and numbers, then the previous chapter would certainly flick your switch, as it provided invaluable data on the silver supply dynamics (i.e. where silver comes from and how much of it is available). This chapter, chapter 4, presents the other side of the coin, namely, silver demand (i.e. how much silver is required to make the ‘world go around smoothly’).

Morgan and Marchese explain that it is important to understand that silver demand has three main categories; fabrication (which includes photography, silverware, and jewellery) industrial (which includes electronics, batteries, photovoltaic, and other novel uses), and monetary (which includes coinage, silver bars, and Exchange-Traded Products). Thus, the first major segment in this fourth chapter is a summary of the two major global silver demand studies (CPM Group and Silver Institute’s work with Thomson Reuters GFMS), which are to be considered from the above three dimensional demand context. In short, one study concludes that silver is in a surplus (total supply 1.05 billion oz; total demand 968.5 million oz per year), while the other that silver is in a deficit (total supply 978 million oz; total demand 1.08 billion oz). The authors own research seems to suggest that silver is in deficit, somewhere between the two studies. (The next few pages seems to jump from discussing the nature of silver to some thoughts on the Consumer Price Index with little explanation of the flow of thought).

The next segment presents the some thoughts on the True Money Supply (TMS), but again, very little explanation is given as to what the purpose of this topic is in relation to the broader argument of the chapter. Perhaps to a professional analyst, the connection is clear?! But be this as it may, under this same sub-headings, the authors commence discussing industrial/investment demand relative to the silver price. I think the charts are technical, but given some effort to understand them, they are very interesting and telling.

The next sub-section focuses on novel and growing uses of silver within the realm of industrial demand. Here is the list: photovoltaic, Ethylene-oxide, solid state lighting, flexible displays, interposers, batteries, super-capacitors, wood preservatives, automotive, radio frequency identification, water purification, medical uses, and food packaging. This information was necessarily attention-grabbing, for it assists investors and stackers of the physical metal grasp the actual value and importance of silver to our fast-advancing modern civilization. It’s more than just a shiny metal to be hoarded and hidden in the back of vaults.

The final segment of the chapter discusses the future of investment demand. In short, silver industrial and investment demand has steadily increased over the past few years, and it is projected to increase significantly over the next few years. While it is true that the price of silver has declined since 2011 in tandem with increased investor and industrial demand, this is perhaps a temporary state of affairs that is due to the current manipulation of the price by the cartel. No manipulation will last forever.

In summary, and most importantly, the authors make the following statement: ‘the reason silver will see such a drastic increase in price over the next several years is due to sharp increase in investment demand.’

 

For the South African investor, it is worthwhile to think of the present reality and data on silver mining in South Africa. According to www.gcis.gov.za, ‘South Africa does not have a primary silver mine and the metal is only produced as a by-product of other minerals. Silver was produced as a by-product from 13 gold operations, one uranium mine, two copper mines and two platinum mines in 2008. Despite the vagaries of the global economy, production increased by 8,1% to 2,7 million ounces of silver in 2008’. The most recent data that I was able to source puts the total silver mined in South Africa at 66 metric tonnes or 2.1 million ounces, worth about R550 million (at the spot price of R260). To put this into a global perspective, South Africa produces less silver in a year than the United States Mint required to produce American Silver Eagles in the month of April this year (the figure was 4 million ounces). More importantly, what this communicates to me as a silver investor is just how little local silver is actually available to the South African Investor. For example, Forbes estimated our Deputy President Cyril Ramaphosa’s wealth to be almost R7 billion. This means that Mr Ramaphosa could purchase South Africa’s yearly silver production 12 times over, or, purchase every ounce of silver mined over the next 12 years. While the Chinese clearly would never allow that to happen, this clearly demonstrates either how ludicrously rich the deputy president is, or, how little silver South Africa produces on a yearly basis. But on a more serious note, it seems to me that even if silver investing becomes more mainstream here in South Africa, the availability of locally mined silver for investment purposes will be relatively ‘petite’; less than 1/10 ounces of silver per adult per year.