by H Mandeel, SGT report
Contrary to many other investors, I did not invest in physical silver out of fear of an economic collapse or inflation or hyperinflation. I invested in silver purely based on the anticipated future supply shortage. To demonstrate my point, here is a chart on the total remaining silver years of supply based on current production rates.
As seen in the green graph chart, in the next 10 years Canada, China and Mexico would be running out of silver. This will remove 9000 tons (289 MILLION ounces) of annual supply from the market. That’s a whopping 40% decrease from current mine supply! And the chart assumes NO INCREASE IN DEMAND over the next 10 years.
How much each country produces:
The importance of orange chart is to show how much physical silver each country produces annually allowing the investor to estimate price shock in case of any export restrictions. For example, China could limit the export of silver as they have less than 10 years of supply – in fact China DID announce an immediate reduction in their physical silver exports by roughly 60% in 2010! Mexico has less than 10 years of supply and could stop exports or monetize silver. And Peru is has high political risk.
I am skeptical of some of the data from Chile, Peru and Poland because when I was working the calculations of dividing production rate by reserves, both Chile and Peru show exactly 50 and 30 years without any decimal points! This means that they just thrown a number and multiplied it by current production to calculate reserves (very crude and unscientific). On the other hand, Poland with 71 years is a bit on the far-side and may included unproven reserves in the estimation! However, I will still accept this data as “correct” and base my calculations on it.
Here is another data chart showing the total available tonnage of silver reserves in the ground in each country:
Let’s start with the definition of “Reserves” first:
“Reserves: That part of the reserve base which could be economically extracted or produced at the time of determination. The term reserves need not signify that extraction facilities are in place and operative. Reserves include only recoverable materials; thus, terms such as “extractable reserves” and “recoverable reserves” are redundant and are not a part of this classification system.” – USGS
The process of starting a new mine is daunting, from discovery to start-up to actual mining production the process takes 10 years or so. It’s foolish to anticipate new physical silver supply once the physical shortage becomes evident. It would take many years for new mines to come on-line and even partially replace the anticipated physical silver shortage.
As seen in this chart, physical silver demand increased by an average of 550 tons each year and the price went from $4 to $32 in 10 years. However, in an attempt to be prudent, I use the conservative assumption that silver mine supply will remain fixed at the 2012 rate of 23’800 tons/year (765MM ounces/year) for the next 10 years. No growth, no increase in demand – this despite silver being the MOST NEEDED commodity in technological and industrial manufacturing.
Even if there is NO fiat currency inflation in the United States, which is laughable…
and NO worldwide economic collapse….
and NO increase in physical silver demand over the next 10 years via industrial need or jewelry or investors like us…
and NO further export restrictions from nations like China – or other supply risks….
We will STILL be facing a around 40% supply shortage by the end of 2022.
The fact is we are approaching peak silver in the next three to four years. The silver price should follow a path similar to what oil did when it catapulted from $20 to over $100. Hence, I expect the physical silver price to be well over $100 before 2015. (Ed. Note: It’s worth reminding our readers that James Turk has long predicted that the price of one ounce of silver will be $400 per ounce by 2014, with gold at $8,000 per ounce.)
The price of physical silver would then continue to rise by more than 15% annually as I assume that the existing silver reserves will continue to be depleted far faster than new discoveries and new production can replace. And with that, silver will finally re-establish the historical silver to gold ratio of 15 to 1. Or, even more likely, the worldwide geological silver to gold ratio of 9 to 1.
Finally, I have to warn you that riding this bull market will not be easy even for a seasoned cowboy. The roller-coaster ride and volatility may be beyond normal human tolerance. You may suffer a blackout or two during some of the stomach turning dips. I have been invested in physical silver for the past 5 years and the silver price remains on target despite all the mind blowing volatility. I currently have 30% of my investment capital invested in physical silver and I stand ready to add 20% more on a sharp price drop if and when it comes – so fair warning Ms. Masters.
Meanwhile, I would ask you to do your own research on the subject before you consider investing in physical silver – or anything else for that matter.
This is not investment advice, it’s common sense. It is my firm opinion that we should all keep stacking.