At the moment the world is in a turbulent transition state like a colloidal solution being stirred, there is no way to tell when the solution will suddenly chose a new state and stabilise into a gel. Metals could just as easily become ignored by the public as an irrelevancy from the past rather than as a safe haven. One of the most dangerous things about the current situation is that there is a purge of traditional values and an erasing of history underway, metals could easily lose their lustre, especially with the digitally obsessed “screen generation” who may simply ignore them.
Gotta love the colloidal solution analogy, I think it's well placed.
For me, silver has such a strong upside potential regardless of investment demand or interest. I'll attempt to avoid writing a small novel in this post, but here are my main reasons for Silver's upside in the long-term:
Industrial demand
Mine supply
Mine lifespan
Known silver deposits
Global mining ratio of silver to gold
As most are aware,
industrial demand makes up the largest portion of global silver demand, and the data suggests that demand from industry is increasing, whether it's increasing uses in medicine, electronics, photovoltaic systems or other areas.
Mine supply has been increasing too, but most mines need to process more ore to increase production. This typically correlates to higher production costs. Mine supply alone has not been sufficient to meet global demand, in fact, the deficit is approx. 200Moz over the past few years. We have had deficits in mine supply vs demand for up to 15 years and are dependent on scrap metal refining to make up that shortfall.
For me, this is crucial as the majority of above ground available silver is dwindling since silver was removed from our currency. The world simply doesn't have the silver stock available to feed the markets (long term) in times of deficits.
Mine Lifespan - The lifespan of many of the major silver producing mines only have an estimated 4-7 years of production remaining. Cannington and Fresnillo allegedly fall within this category. Another important factor in this equation is
annual production capacity. You can be sitting on a 500Moz deposit, yet have a production capacity limited to 20Moz per year for that deposit. Each mine will be limited in it's contributions to global supply annually.
Known silver deposits - Here is a map of known silver deposits in Australia:
It may look like a lot, but when you do the math, it's far from it.
The largest of the circles indicate significant deposits, which all have an existing mine.
The second largest deposits are estimated to be between 500-5000 tonnes. That's between 16Moz's and 160Mozs. That is not a lot of silver, I doubt it would be enough to warrant setting up a mine specifically to target silver at these prices. A large, open Pitt primary silver mine may produce up to 40Moz per year. It is also worth mentioning that silver deposits and ore grades do not equate to realised production. Real production is much lower than the amount of silver discovered or even extracted.
The third largest (circle) deposits are only estimated between 1.6Mozs and 16Mozs.
The smaller deposits aren't even worth mentioning. The deposit size is so small that it wouldn't be feasible to mine for the silver deposits until Silver was well into the 1000's of $$, and even then, the mine Lifespan would likely be shorter than the time it takes to set it up. The mines that
are operating on those smaller deposits are clearly not targeting silver.
Gold to silver mining ratio - The global mining ratio of silver to Gold is
9:1. With the majority of annual supply of silver being consumed by industry, it's only a matter of time before the price ratio begins its downward trajectory towards the mining ratio.
I personally take a 10-40 year stance on my silver stack. My strategy for when to buy has mainly revolved around the All-In-Sustaining-Costs (AISC) of the primary silver miners. In an environment of year-on-year deficits between mine supply and global demand, the primary silver miners have never been more critical in establishing a bottom for the silver price. This bottom is $15-17USD for me. Many people tout the fact that byproduct mining making up the majority of silver production is the sole reason why silver can go much lower. This may be the case if we didn't have deficits in supply/demand and also had an abundance of above ground available stockpiles, but we don't. The bottoming of the silver price has directly correlated with the AISC of the primary silver miners over the past 15 or so years. Although primary silver producers only contribute to 30% of annual mine supply, they are a critical component in supplying the global market and many NEED the price to be at least $15USD to break even, let alone be profitable. There's a lot more to the AISC of primary silver miners though. Many primary silver miners rely on other metals like copper, lead, zinc and gold to sustain production, and silver doesn't even make up over 50% of their annual production. The price of these other metals is also important to consider as the lower they are in price, the higher the AISC for silver production and vice versa.
Silver is well poised to increase in price if ore grades continue to decline, mines begin to close and demand from industry continues to increase. Then you factor in
investment demand!
Investment demand is an entirely different beast. You can have a massive increase in price of investment grade Bullion without an overall shortage in global silver supply.
Considering investment grade Bullion only accounts for approx. 20% (200Mozs) of global demand, the capacity to meet significantly higher demand (say 40% or 400Mozs) is dependant on the production capacity of the mints, the refining capacity of refineries and the logistical capacity to move product relative to demand in that time. In my view, this is why we have seen such increases in premiums for silver and the lack of stock at most dealers, it's the bottleneck aspect of production and supply.
For all those reasons above and much more, I have chosen silver over gold for my retirement vessel at this time. That's not to say I don't hold gold, I love gold, but I can see much greater potential in silver for my purposes of stacking. I believe we could very easily see $40USD silver over the next couple of years, and it could even make it there without the influence of significant investment demand...
