Demand for silver is growing quickly while supply remains constrained, the result of which will be higher silver prices ahead.
Demand for Silver: Where It’s Coming From
In April of this year, 835,000 ounces of silver were sold in American Eagle coins. In May, it was more than 2.45 million ounces. This represents an increase of 194% month-over-month for American Eagle silver coins! (Source: “2017 American Eagle (Sales totals by Month),” United States Mint, last accessed June 2, 2017.)
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Mints around the world are reporting strong silver sales, but climbing mint sales are just one part of the rising demand for silver.
As I have written before, industrial demand for silver is increasing. Silver is a key ingredient in everyday electronics like cell phones and in emerging technologies like solar panels.
According to Gartner Inc (NYSE:IT), a research and advisory company, in the first quarter of 2017, 380 million smartphones were sold globally. Sales of these phones increased 9.1% year-over-year. (Source: “Gartner Says Worldwide Sales of Smartphones Grew 9 Percent in First Quarter of 2017,” Gartner Inc, May 23, 2017.)
The United States Environmental Protection Agency (EPA) states that one million cell phones contain 772 pounds of recyclable silver. (Source: “How Many Precious Metals are Found in Electronic Devices?,” Electronic Recyclers International, Inc., June 23, 2015.)
A few weeks ago, I wrote about how silver is becoming increasingly used in solar panels. The use of solar panels as an alternative energy source continues to rise. And you can’t have solar technology without silver. (In case you missed my article on silver and solar panels, you can see it here: “This Catalyst to Send Silver Prices Soaring to $50.”)
Silver: The Supply Side
Now, on the supply side of the silver equation, things are looking tight. Mexico is the world’s largest silver-producing country. The table below shows the year-over-year percentage change in monthly silver production in Mexico.
|
Monthly Change in Mexico Silver Production (Kilograms) |
|
| Month |
Year-Over-Year % Change |
| February 2017 | -5.10% |
| January 2017 | +4.49% |
| December 2016 | -22.96% |
| November 2016 | -21.26% |
| October 2016 | -23.21% |
| September 2016 | -23.62% |
| August 2016 | -18.43% |
(Source: “Value and volume production of Silver,” Servicio Geológico Mexicano, last accessed May 30, 2017.)
In six of the last seven months, silver production in Mexico declined from the same month a year earlier!
And, with silver prices being lower today than they were in 2011, silver miners have cut back spending on the exploration for new silver deposits. Hence, the annual world production of silver is not increasing.
Silver Prices: The Perfect Storm
Economics 101: When demand increases and supply declines, prices move higher.
What I see in the silver market is a perfect storm of rising demand and constant supply brewing, which I believe will ultimately result in higher silver prices. I expect $50.00-an-ounce silver sooner than most investors can imagine.
