SILVER 101 – IS 761,000,000 A LARGE NUMBER? NO!
by Al Doyle for CoinWeek ……
Imagine owning a corporation with annual sales of $761 million. Better yet, wouldn’t a net worth of that amount go beyond your wildest dreams? So how can 761,000,000 (that’s more than 3/4 of a billion) be a relatively mundane number?
That high nine-digit figure represents the ounces of newly mined silver worldwide in 2011. While 761,000,000 can be an imposing sum in many circumstances, just do the math and see why it’s no big deal when it comes to the silver supply.
Since the metal is treasured worldwide as a store of value and for its hundreds of industrial uses, what would each person’s share of this newly discovered ore come to? Divide 761 million by the current world population of 7.1 billion, and it works out to just over 1/10 ounce per person, or 15 cents in pre-1965 U.S. silver.
Putting it another way, 2011′s silver production averages out to a little over $3 per person. Even a third world laborer could scrimp and save enough to claim his portion of what came out of the ground. Calling silver a thin market compared to gold is a vast understatement, as the current value for 2011′s mining production comes to $22.5 billion.
There has been a rush to precious metals in recent years, and the surge in demand has led to much higher prices. Over time, this trend is more favorable towards silver than gold.
Numerous investors who eagerly bought gold at $400 to $750 an ounce are priced out of that market at current levels. Many newcomers are buying metals on a modest budget, and “the poor man’s gold” is much better suited to their circumstances than the flashy yellow metal. What about investors worldwide who earn somewhere between $25 and $300 a week? With rare exceptions, silver is going to be the main option.
Why has the gold/silver ratio been in the 15 to 17/1 range throughout history until recent generations? The old scale represents the ratio of the metals in the ground. Even if silver doesn’t return to its former status compared to gold, there is plenty of room for the metal to rise from the current 53/1 price level.
If there is supply of new silver is so small compared to other assets, why aren’t there more mines being discovered? Silver is scarcer than most people believe. There are less than 30 mines worldwide that are exclusively dedicated to silver. Most of the supply is a byproduct of zinc and copper mining. The bits of pieces of silver that are refined from base metals are essentially found money for those in the mining business.
The low-hanging fruit such as the incredibly rich deposits of the Comstock Lode and the first generation mines of Mexico and South America are long depleted and gone. Silver deposits today are measured in a few ounces or grams per ton of rock and dirt. Ironically, the main factor that motivates retail demand for silver – economic instability – also serves to put a damper on new supplies, as demand for copper and zinc declines during such times.
Mexico is the leading source for silver today, and the nation’s mines produced 20 percent (152.8 million ounces) of what came out of the ground in 2011. Peru (109.8 moZ) and China (103.9 moZ) are the only other places that accounted for more than 100 million ounces.
Australia came in a distant fourth at 55.2 million ounces, while Chile, Poland, Russia and Bolivia were tightly bunched at 39 to 42.8 moZ. The United States ranked in ninth place at 36 million ounces, and Argentina (22.6 moZ) rounded out the top 10
It would be all but impossible to top India’s silver supply/demand imbalance. In a nation where precious metals ownership is thoroughly ingrained into the culture, just 11 million ounces were discovered in Indian mines in 2011. The nation’s long-standing role as a perpetual and major silver importer isn’t going to change in the future.
In most situations, 761,000,000 is an impressive and attention-grabbing number. When the current and potential demand for silver is considered, it’s not such a big deal