Is Above-Ground Silver Now Rarer Than Gold?

Posted: April 22, 2008 in Your Silver Lining
Tags: , , , , , ,

” Over the next 28 years, gold should add another two billion more ounces minimum to above ground supplies, while it appears impossible for silver to add even one single ounce. In fact, based upon expected future demand, it’s likely that silvers above ground inventories will decline. For all practical purposes we are close to full depletion currently. “
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Comments
  1. canuck99 says:

    Gold more plentiful than silver? In terms of above-ground available inventory-most definitely yes. Many researchers have reached this conclusion. Silver still interred in the ground is still more plentiful than gold as a whole, but the rebalancing will take decades to correct. The author, Ted Butler, is obviously pro-silver, but his work is fair and his estimates I have found to be conservative. …

  2. Tom says:

    Doh! Tom had a really good comment here and I overwrote it by accident (honest!) I’m trying to reach Tom in hopes he has a backup. Sorry folks :-(

    Canuck99

    Excerpts from original Tom comment:

    … annual demand for silver in jewelry and other forms is almost 200 million ounces

    At the same time, silver is growing at a yearly rate probably double that of gold (150 million ounces to gold’s 75 million).

    So in the next 28 years, there should be 7 billion ounces of gold and 24 billion ounces of silver.

    There are two main differences to keep in mind: First is that the rate of addition to existing silver is actually HALF compared to gold (7/5 = 40% and 24/20 = 20%)

    So, the “above ground supply” is still a net positive for silver in comparison to gold, but not as wildly so as Mr. Butler would have you believe.

  3. canuck99 says:

    Interesting clarifications, Tom, thank you.

    T.S.> “… annual demand for silver in jewelry and other forms is almost 200 million ounces”
    - GFMS agrees with this amount (222 million ounces, actually), but of course this gross number does not factor in scrapping, especially in India. According to the GFMS’ Phillip Klapwijk in a presentation this January: “Price not high enough to stimulate much scrapping of jewellery and silverware, except in India.” (source, Page 21). Using the 2008 GFMS estimate of world scrapping at 20% that would reduce net jewellery and silverware annual gains to around 175 MOz.

    T.S.> At the same time, silver is growing at a yearly rate probably double that of gold (150 million ounces to gold’s 75 million).
    - The 150 million does not jive with the 2008 GFMS report, which states: ” Production growth is expected to accelerate to 6% (+40M oz) in 2008 on the back of a number of new projects, ramp ups and expansions. ”

    T.S.> So in the next 28 years, there should be 7 billion ounces of gold and 24 billion ounces of silver.
    - Assuming the corrected 40M oz to be constant over 28 years (which IMO is a very big assumption — I’m not comfortable predicting much beyond 10 years at most, but here goes) would result in an adjusted global supply of 21.12 Boz, not 24 (assuming your 20Boz estimate is accurate). With gold now at 7Boz that’s still the ratio of silver to gold will have barely budged over 3 to 1, and that’s a full 28 years from now!

    T.S.> There are two main differences to keep in mind: First is that the rate of addition to existing silver is actually HALF compared to gold (7/5 = 40% and 24/20 = 20%)
    - Fully concur, especially if 24 becomes 21–that’s 40% to 5%! I agree on your second point also, although to clarify scrapping is already going on of course, but I think you are mainly referring to when the investors start scrapping.

    T.S.>So, the “above ground supply” is still a net positive for silver in comparison to gold, but not as wildly so as Mr. Butler would have you believe.
    I don’t know, Tom. I really think Mr. Butler is on to something big–very big. Even using 24 that’s a ratio of 3.5 to 1, that’s hardly a restoration to the historical norm (I mean historical as in 19th-century and earlier, before government dumping began). I keep reading that ratio to be 15 to 1. This becomes especially more apparent should the 28-year forecast above become true. Consider the time frame involved–I mean that’s more than a generation from now!

    Tom, your comments are very well thought out and I highly appreciate them. I’m sorry for the snide tone in my earlier posts (I plead fatigue–1 a.m. is not my best time for tact). I want very much to also comment on your other, very detailed reply on the Canadian Mint leasing, but this is not my FT job and my lunch is up. Soon! Thanks so much for the effort!

  4. Tom says:

    Hello, Can you please restory my original comment, looks like it might have been overwritten? The only additional comment I’ll make is that the 150 million “growth” was not a reference to the increase in production but the annual addition to the 20 billion ounce above ground stockpile as a result of jewelry and investment demand.

    By “wildly” I mean speculation that silver could perhaps trade at 10:1 or even 1:1 to gold on a sustained basis. I think 10:1 might be achieved in a spike but 1:1 is simply not possible (unless gold comes crashing down to $250 while silver is manipulated again by the likes of Hunt Brothers II–which IS technically possible). The reason is simple math. Let’s assume both gold and silver go to $5,000 without drastic decrease in the purchasing power of the dollar (eg. the dollar index stabilizes at 0.5200 as according to Jim Sinclair). That’s 25 billion ounces x $5,000/oz. or $125 trillion in value. Yet the total tangible wealth of the entire globe as measured in dollars is on the order of “only” about $100 trillion (forget all the paper promises, they net to zero). So, we are to believe just one asset class (gold and silver) will soon exceed in relative value the entire wealth of planet Earth? No way. A more reasonable possibility is combined gold+silver might be valued at $30 trillion. Then, 5 billion oz. gold x $5,000 = $25 trillion and $5 trillion / 20 billion oz. silver = $250/oz. That gets you a ratio of 20:1 and a more plausible, though still extreme, scenario. $5000/$850 = 488% for gold, $250/$16.50 = 1415%. Still excellent, but not as wild.

  5. canuck99 says:

    Hi Tom, I emailed you hoping you had a copy of your comment. How about I piece it together from my excerpts and you fill it the rest? So, so sorry. (A flaw, IMO, of the WordPress UI–I clicked ‘Edit This’ on the top of my comment not realizing (until too late) that I was destroying yours.)

  6. Tom says:

    I don’t have the original comment, but I do recall making the point that Ted Butler and others don’t compare gold and silver on the same basis. They include in “aboveground gold” all investment bullion as well as jewelry and other decorative forms whereas for “aboveground silver” they include ONLY investment bullion held in large stockpiles. Yet there is significant amounts of silver held in small amounts in the form of coins, commemoratives and not to mention by Indians, Chinese and other “cultural buyers” who hold billions of ounces of silver in a form that is just as readily accessible as the gold they hold. The main difference is that silver would probably not come quickly to market as scrap if prices were to increase, but there would be some price at which a LOT of silver would come to market, and by LOT I mean billions of ounces. Of course, it would take many months and perhaps years to refine all this silver into marketable forms and this represents a bottleneck on supply. Overall, silver’s aboveground supply DOES have attractive characteristics compared to gold at the current price ratio of more than 50-to-1, but this attractiveness is limited and certainly would not support silver trading at parity to gold or anywhere close to it.

  7. canuck99 says:

    T.S. ” not to mention by Indians, Chinese and other ‘cultural buyers’ who hold billions of ounces of silver in a form that is just as readily accessible as the gold they hold. ”

    FYI. I know quite a few mainland Chinese: Gold stash? Most definitely yes. Silver? Non-existant.

    Ergo, backup to your statement that Chinese “cultural buyers” are holding billions of ounces of silver would be appreciated.

  8. shawn corrigan says:

    above ground silver is approx 1 billion ounces. gold is approx 6 billion ounces. now the mining soils do have much more silver than gold , but there are many problems getting it out. the yearly production of silver is about 800 million ounces. and growing ,however the useage is growing too, this may drop as global declines are slowing industrial production,however the use of silver will shift, i believe into use as money and a hedge, this will more than compensate for the drop from industrial useage. all in all the potential for silver is even better than gold,and it is in some ways rarer than gold

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