When a crisis strikes and investors around the globe are scrambling for precious metals, will there be enough silver to go around? We’re already seeing a sizeable increase in the number of silver bullion coins and rounds being bought this year.
What you’ll learn below might give you pause for thought…
Is There A Silver Supply Shortage?
According to the US Census Bureau, there are currently 7.34 billion people in the world. And according to CPM Group, one of the most thorough research consultancies in the precious metals industry, there is approximately 53.15 billion ounces of silver above ground.
So simple arithmetic tells us that there’s 53.15 / 7.34 = 7.24 ounces of silver available for every person on the planet. Right?
Actually, no. Turns out that’s not even a close approximation.
Only a small percentage of silver is used to make bullion coins, bars and rounds. This chart shows the major uses of silver and you can see just how little of it gets turned into bullion and coins…
How much silver is used to create coins varies each year but not by orders of magnitude. The point is that most silver goes to other purposes.
The “bullion” portion (bars, ingots, etc.) mostly ends up in the hands of institutional investors, ETFs, etc. That metal will continue to be gobbled up in the next crisis, since it’s also an investment form of silver. Much of that metal therefore will not be available for retail customers, either (unless you’re buying bars).
Won’t Mine Supplies Continue To Grow And Make Plenty of Silver Available?
Ehh…No. For the first time in many years, mine output is projected to drop. This next chart shows that, across the board, silver mine supply has dropped since its peak in 2015.
Because many primary silver mines, and even some that produce silver as a byproduct, were forced to shelve development projects due to low metals prices between 2011 and 2015, as well as having to curtail or even stop exploration efforts altogether.
It’s like trying to stop a train. The inertia means it takes time for a particular trend to slow to a halt before you can even think about changing direction. It will take years for this trend to reverse — it typically takes about a decade from making a discovery until metal is actually poured.
The point is, the shortfall in silver supply will not be made up by mine supply.
Well, there’s always scrap, isn’t there? Isn’t there plenty of that that can be melted down to cover the shortfall, making American Eagles and other silver coins for retail customers like you and me?
Nope. The amount of scrap silver is declining too.
So Why Is That Happening?
The decline in scrap started at the same time that the price of silver started to drop from around $46 per ounce in 2011. Recycling of silver scrap peaked in 1980 which is also when the price of silver hit its all time high (just under $50 per ounce). Remember that $50 in 1980 had greater purchasing power than $50 today.
So the amount of scrap available depends totally on the price of silver. Scrap availability will only start increasing again when the price of silver starts to increase substantially.
Here’s one scenario to illustrate the point: is your grandmother rushing to sell her silver jewelry at $20 silver? Would she part with the family heirlooms at $30? Or do you think silver would have to go ballistic and hit $100 before she’d consider it?
Oh, and scrap isn’t going to make up for the shortfall in silver, either.
We’re now at a point where the supply of silver for investment is already tight and because of the trends in mining and scrap, things can only going to get worse before they get better.
Add to that the fact that most people will hoard their coins and bullion until prices go much higher so that they can then cash in.
There will be a price point at which the silver supply will reverse its downtrend but that’s not going to happen with silver at $20 an ounce. Or anywhere near that price.
The Next Silver Rush
With the price of silver having dropped to about $14 per ounce during the bear market of the last few years, investors know that the metal is severely undervalued. So they’re hoovering up silver as fast as they can in anticipation of the good years to come now that the bull market has returned.
Demand for investment silver just won’t let up. It’s set a new record high every year of the bear market.
This includes silver Eagles, silver Maple Leafs, silver Philharmonics and silver Kookaburras, Kangaroos and Koalas. Some of these coins have limited mintages (1,000,000 per year) and are being sold out as fast as they’re produced. Based on year-to-date sales of coins like the Eagles and Maple Leafs which do not have limited mintage, it’s not hard to project that they’ll have another sales record high this year.
This chart shows the number of American Eagles sold, year on year since 1986 (each coin is one ounce in weight)…
Globally, net demand for silver coins was 145.7 million ounces last year, also a record high.
Now, since you’re on this site, you at least have some idea that gold and silver can be bought easily and that these precious metals are a way of preserving wealth and purchasing power into the future.
Now consider that this unrelenting demand for silver has occurred with the vast majority of the of the public still sitting on the sidelines, oblivious to this type of investment.
How many of your neighbors own gold and silver? How many of your family members, friends, co-workers, etc., have bought gold and silver? I’m willing to bet most haven’t. I hadn’t bought any myself until earlier this year.
The point is, when the next silver rush takes hold, many people that don’t own any bullion will want to buy. And there won’t be enough to go around. Not even close.
Here’s a great example:
- If just 10% of the US population (32.4 million) wanted to buy one tube of silver Eagles (20 coins), it would take the US Mint roughly 12.5 years to fill that demand at current production levels!
There’s simply not enough production capacity, not enough hours in the day, not enough silver, to fill that request. It cannot physically happen.
This isn’t a problem unique to the USA or buying silver in the USA. The same reality applies to other countries and Mints as well.
What It All Means
You don’t have to be a rocket scientist to see that if we hit a crisis, and plenty of analysts and economists are predicting a major one is just over the hill, and additional investors flood the silver market, there just will not be enough physical metal to go around.
That fact alone will drive prices higher, regardless of anything else that might be happening. It could really be a perfect storm for silver.
So here are some things to think about, things that will definitely happen in such a scenario…
- There Will Be Longer Delivery Times: If you’re currently holding off buying physical silver in the hopes of a price drop but you end up having to buy in the environment outlined above, you’ll have to wait a long time for your silver to be delivered. And the longer you have to wait, the more that can go wrong. If you don’t know, delivery times in 2008/09 were about two months for the most popular silver items. That’ll happen again. And delivery times could be even longer.
- You’ll Pay Higher Premiums: If you’re still trying to buy physical silver in this environment, you’ll have to pay more for it. You’ll pay a higher price for the silver and you’ll pay higher Premiums on that silver. During the last supply shortfall, Premiums didn’t rise by 10% or 20% — they doubled and tripled!. Get this… in 2008/09, premiums for some silver products hit as high as 100%! You do NOT want to be attempting to buy silver in this environment. In fact, that will be the time people who already own silver will want to sell. And as sellers, we’ll collect some of that premium. It truly will be a wonderful and profitable time for those of us who bought early!
- A Lack of Metal: As the first chart shows, most silver mined goes into industrial production. That silver gets used up and disappears from the world. If mining new silver can’t make up the shortfall, industry will start buying up scrap silver leaving little or none available for retail customers. There may come a day when, if you don’t already own silver, you’ll never be able to. A day when all newly mined silver goes straight to industry. If you own silver in that scenario, you’ll likely be able to sell it for a very good price.
As I mention elsewhere on this site, I don’t give financial advice. I’m just an ordinary guy who’s made some investment decisions based on my research of how the economy is going. That said, I have bought a fair amount of silver coins this year. Because of silver’s use in industrial processes, it may become more rare than gold in future years. It’s cheaper than gold so is a much better option for investors on small budgets.
My bank gives me a pathetic rate of interest on my savings. Inflation far outpaces that interest rate so every year I leave my money sitting in that account, it’s losing a few percent of its purchasing power. It’s being devalued as it sits there.
The main reason I bought gold and silver is to preserve the purchasing power of my money. It’s a bulwark against inflation. While precious metals don’t have an associated interest rate, gold this year alone is up about 28% and were only two thirds of the way through the year.
Silver has done even better, up about 46% on its price at the start of the year.
No bank is going to provide a return on investment like that. But I’m not selling any of my holding. From everything I’ve read, from the economists and analysts I’ve seen interviewed, the expectation is that the price of both gold and silver will go much, much higher. It’s a gamble, yes, but for me it’s worth it. Better than seeing the value of my money in a bank being chipped away year after year.
Everyone’s situation is different. But if you have some money, at least think about investing some of it in precious metals. Use this site to inform yourself of the options, benefits and pitfalls.
But remember, the supply of silver is falling. Mine production is in decline. Scrap is dropping. Demand is making new records. Nobody is selling. And most people haven’t bought yet. And to cap it all, a monetary crisis is coming.
To answer the question posed in the title this article – What If Everyone in the World Wanted a One-Ounce Silver Coin? – the answer is that it would not be possible. In 2015, 145.7 million ounces of silver coins were sold. That means, only 145,700,000 people on the planet could have bought one 1 oz silver coin each. That’s about 2% of the world’s population.
I’d love to know what you think about all of this so please share or leave a comment below…