Silver Supply Squeeze! Can Miners Catch Up to Silver Demand?

Meeting Growing Silver Demand Is Easier Said Than Done


Mike Maharrey Mike Maharrey
Midweek Memo
October 9th, 2024 Comments

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Industrial demand for silver is at record levels. Can mine production keep up?

As Money Metals' Midweek Memo host Mike Maharrey explains, that's easier said than done. In this episode, he focuses on the supply side of the silver supply and demand equation and explains why miners can't easily step in to fill the shortfall. He also shares some interesting news from Russia that could drive even more silver demand in the future.

Mike opens the show lamenting that he's staring down the barrel of another hurricane, and he shares one lesson taught by Helene - the need for physical money. He points out that electronic transactions don't happen without electricity or the internet. 

He then pivots to the main topic of this week's show. 

"I thought I would talk a little about silver today. We had a pretty significant correction on Tuesday, but silver is still holding strong above $30 an ounce. As I’ve said a number of times on this show, I think silver has a lot of upside. I’ve talked a lot about the skyrocketing demand, but I haven’t talked as much about the supply side of the equation."

Mike notes that silver demand has outstripped supply for three straight years, and the Silver Institute projects another market deficit this year.

"Meanwhile, mine output has sagged since peaking in 2016."

He points out that when mine output peaked, the silver price averaged about $13.30 an ounce. Today it is over $30 an ounce.

"Now, you might think that with the price going up, miners will just ramp up production to take advantage of the price. But it’s not as simple as that."

So, why won’t silver production ramp up to meet the demand and take advantage of these higher prices?

Mike explains that more than half of silver production comes from base metal mines. These miners are primarily focusing on copper, zinc, lead, and other metals. Silver is a byproduct. That means they are responding to price signals from their primary metals, not silver.

And while about 28 percent of silver comes from primary silver mines, they face their own challenges, including rapidly rising costs and declining ore grade. 

"These factors mean that even if mining companies allocate significant resources to finding new sources of silver and developing new mines it will take time for production to ramp up and ease the supply shortage. For the next few years at least, we will have to depend on drawdowns of above-ground stocks to meet the supply deficit."

Mike also talks about some interesting news on the silver's demand side. 

"Russia reportedly plans to add silver and boost its gold, platinum, and palladium holdings in its state fund next year. This would be the first time Russia has held silver in its state fund."

It remains unclear how much silver the Russians plan to include in the precious metals strategy.

Mike points out that this is yet another response to American economic warfare.

"The United States has taken advantage of its privilege as the issuer of the world's reserve currency, in effect, weaponizing the dollar for use as a foreign policy tool. This has led to a movement in many countries to gradually minimize exposure to the dollar. This is a primary driver of ongoing central bank gold accumulation around the world. As de-dollarization has accelerated, countries have primarily turned to gold as a reserve asset. Russia’s plan to include silver in its strategy is a new development."

The question is whether silver will follow gold's path and become an important reserve asset. 

Russia’s pivot to silver comes at a time when the metal seems to be underpriced, given the supply and demand dynamics. If other countries follow Russia’s lead and begin holding silver, it could further strain supply and put more upward pressure on prices.

That leads to Mike's call to action.

"I’ve been saying this for a while, but I think we still have a great buying opportunity with silver. It simply isn’t priced for the supply and demand dynamics. And as I’ve talked about several times on the show, the gold-silver ratio indicates that silver is underpriced compared. So, now is a great time to call 800-800-1865 and talk to a Money Metals' precious metals specialist!"

Articles Mentioned in the Show

Paper Money Is Not a Fix for Central Bank Digital Currency

How Russian Buying Could Help Drive Silver to $50 and Beyond

A Silver Tea Cup: This Epic 45-Year Silver Pattern Should Have Traders Drooling

Is the U.S. Playing With Fire Using the Dollar as a Foreign Policy Weapon?

Mike Maharrey

About the Author

Mike Maharrey

Mike Maharrey is a journalist and market analyst for MoneyMetals.com with over a decade of experience in precious metals. He holds a BS in accounting from the University of Kentucky and a BA in journalism from the University of South Florida.