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Are We Running Out of Silver?



June 22, 2011 – Comments (7) | RELATED TICKERS: SLV , SIL , SLW

Silver has been on fire for the last three years – substantially outperforming its spotlight-grabbing cousin, gold.

Because we believe this bull run is far from over, we advise investors to always maintain exposure to the precious metals markets. But the question every investor faces in a bull market is: Do I buy now, anticipating prices will continue higher – and chance getting clobbered if a correction arrives? Or do I wait for a pullback and possibly miss out on big gains?

There’s risk either way.

Full article

7 Comments – Post Your Own

#1) On June 22, 2011 at 6:34 PM, rfaramir (28.63) wrote:


There's no such thing as a shortage or surplus, just prices that need to adjust to a new level to clear the market. A free market always clears.

So what mean is "Is silver going to rise in price?" To which the answer is "Yes!"

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#2) On June 22, 2011 at 6:42 PM, TheDumbMoney (71.26) wrote:

The arguably misleading first graph in that link fails to mention that, from 2001 through 2010, demand for silver in photograpy applications and also in silverware has plummeted, essentially erasing all gains from these increasing uses in other industrial applications.  If you net out those two things almost all increased demand in the last nine to ten years (excluding 2011 so ar) comes from increased purchases of coins and silver as an investment (via ETFs, etc.)

Best of fortune to all.

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#3) On June 22, 2011 at 8:07 PM, rfaramir (28.63) wrote:

In the text, they did mention photography and silverware, and that industrial applications now total as much as those two put together. If beforehand, those two dominated, then industrial use was small in comparison. Now industrial use will dominate going forward as it continues to rise, as the other two can only fall to zero, no further.

Worse, while silverware can be re-converted back to usable silver, most modern industrial applications use silver in such small quantities that A) it isn't economically recoverable, and B) it isn't price-sensitive, as it is a very small cost as a proportion of each product. This means A) silver will be "used up" (as opposed to probably 90% or more of gold ever mined still being above ground and reusable), and B) industry won't care if the price rises (for many years at least).

So the price will rise. Thus the investment demand skyrocketing by those who understand these things.

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#4) On June 22, 2011 at 8:29 PM, TheDumbMoney (71.26) wrote:

Here is the key text:

"The first is industrial use. Demand from a number of industries that use silver has been flat or falling. Household demand for silver like cutlery, flatware, and candlesticks hasn’t risen in ten years. Jewelry fabrication is up but a blip. With the shift to digital photography and image storing, use in photographic film processing continues to fall. And yet, total demand from industrial users keeps climbing."

Note the first and last sentences of that paragraph.  Both signal to the reader that the paragraph is about industrial uses. Photography and silverware are discussed in between those two sentences, implicitly as part of those industrial uses, and then the paragraph triumphantly pronounces that industrial users "keeps climbing."  Then, however, the up-up-up graph that immediately follows looks only at the non-photography, non-silverware industrial usage growth. 

Moreover, nowhere does the article acknowledge that the numerical drop in usage in photography and silverware during the 2001-2010 period has almost completely offset the other industrial gains during this time period. 

I will let objective observers decide.

Here is another one from the article:  "To put it another way, ten years ago, jewelry and silverware consumed twice as much silver as electronics applications. Today, electronics applications consume much more silver than jewelry and silverware."

Yes, here is how math works, proportions can change because of declines in one input as well as because of gains in another.  It has become true in part because silverware use has drastically declined. 

Look, you make a great point about the non-recoverability in electronics and the idea that it isn't price-senstive.  But even so, I think the article is objectively misleading, rfaramir, and it would not hurt to acknowledge it.  I may be an idiot who doesn't understand why the price of silver will rise, but I am not running around posting articles that fail to acknowledge fully the true historical demand picture over the last ten years.

Here is supply/demand since 2001, through 2010:

Since you are justifiably very concerned about how all of this electronics silver will never be able to be reusued, let me draw your attention to the explosive growth if silver as an investment since 2009, all or most of which will be available for use in industrial applications at some future date if the price rises high enough, since markets (almost) always clear.

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#5) On June 23, 2011 at 11:02 AM, rfaramir (28.63) wrote:

I didn't just acknowledge that the article was misleading, I criticized its very title! "Are we running out of silver?" -> "No."

The rest of it was not well done, as you point out, but the overall meaning of the article stands.

They didn't show graphs of total silver demand and total breakdown, just those parts that are rising. That's not very objective. But I've seen such charts. The decline in physical photography was pretty large and was probably the main reason for the decline of the price of silver to ridiculously low levels. (That and the market manipulation.) After the large, uncompensated drops, it has continued to tail off, but more slowly. Its slower decline coupled with the rising new uses have reversed the demand situation, along with the massive recent debasement of the dollar. (The Fed has always been debasing it, but it's gotten ridiculous lately.)

It's irritating when someone you agree with uses tactics that used car salesmen use. It's not necessary!

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#6) On June 23, 2011 at 11:12 AM, TheDumbMoney (71.26) wrote:

Thank you.

Please understand (and this goes for you, too, kdakota630), that when I seen article touting an investment that looks like it was written for a 3am informercial (used car salesman tactics is an EXCELLENT description, rfaramir), and with logic that I could have picked apart at age 12, it does not inspire a ton of confidence.

Clearly I need to look into the rising components of industrial demand further though.

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#7) On June 23, 2011 at 11:30 PM, FleaBagger (27.51) wrote:

dumberthanafool - while I was eavesdropping on your conversation with rfaramir, I was starting to get worried that you had failed to notice that kdakota was the one who posted the article. rfaramir just expressed the opinion that silver would go up in price. I agree with faramir here: the article was frustratingly bad, but silver is still one of my favorite investments.

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