by Steve St. Angelo, SRSRocco Report:
Investors need to understand an important fundamental reason why the silver price will explode much higher than gold. While many analysts state several reasons why silver will outperform going forward, I believe one vital fundamental factor is overlooked.
This critical factor is based upon a certain supply versus demand component of the gold and silver markets. Actually, I came across this data while working on the research for a completely different article. However, the more I compared the figures, the more surprised I was by the results.
One of the important aspects of my work here at the SRSrocco Report is to take data, figures and information and to look at them in a different way than most analysts. By doing this, I can spot interesting trends and factors unnoticed by the majority of analysts.
However, before I get into the critical reason why silver will outperform gold in a big way going forward, let’s dissect some of the underlying factors
THE HUGE DISCONNECT: Silver vs Gold Jewelry Recycled Supply vs Demand
While most investors realize that gold and silver scrap supply are used to help supplement the market, very few understand the huge disconnect between these two precious metals when it comes to recycled jewelry scrap.
First, let’s take a look at silver jewelry scrap supply. According to the Metals Focus: Silver Scrap Report, the world recycled approximately 551 metric tons (mt) of silver jewelry in 2015. This may seem like a substantial amount until we compare it to total world silver jewelry demand of 7,045 mt:
Thus, recycled silver jewelry supply of 551 mt accounted for only 8% of global silver jewelry demand in 2015. Why so little? Because, very few people will take the time to go down to a pawn shop or precious metal dealer and sell a couple of pieces of silver jewelry for a few bucks. It’s just not worth the effort.
This is the very reason why very little silver jewelry is recycled. However, gold jewelry is a much different animal all together. Matter-a-fact, the majority of global gold scrap supply comes from recycled gold jewelry. It was difficult to obtain the data on global gold jewelry scrap supply, but I was able to provide an approximate figure based on the data in the Metals Focus: 2015 Silver Scrap Report:
The recycling of silver from old jewelry makes up the second smallest category of silver scrap supply. Its limited scale is also marked in comparison to gold; silver jewelry fabrication may be more than double gold by weight, but its jewelry scrap is less than half gold’s. These modest numbers for silver are largely due to the small amounts typically sold back by consumers as the low value per item means there is little incentive to sell.
Second, according to data from the World Gold Council’s Full Year Demand Trends, and based upon my calculations, global gold jewelry scrap supply was approximately 1,000 mt versus 2,415 mt of total gold jewelry demand in 2015:
Thus, global gold jewelry scrap supply comprised 41% of total gold jewelry demand in 2015. This is an astonishing figure as gold jewelry scrap supply versus gold jewelry demand is five times greater in percentage terms (41% gold vs 8% silver) than its silver counterpart.
Again, this is due to the fact that gold jewelry owners are well rewarded for their time to sell a few gold rings for say $500-$1,000 versus $5-$15 for several pieces of silver jewelry (based on metal content only).
NOTE: The data in the Metal Focus: Silver Scrap Report states that silver jewelry scrap was less than half of gold jewelry. Unfortunately, this is where I had to make an adjustment and estimation. The World Gold Council states that total gold scrap supply in 2015 was 1,093 mt. Half of that would be 545 mt. This is less than the 551 mt reported by Metal Focus for silver jewelry scrap supply. Not all of global gold scrap supply comes from jewelry. Some may come from recycled industrial scrap and old gold coins and bars.
This is why I provided the estimate of 1,000 mt for global gold jewelry scrap supply in 2015. Furthermore, each official reporting source may publish different statistics for the same data which makes it difficult to provide exact figures. So, it is important to look at the overall trend and not to waste time focusing on exact measurements or data.
Now that we have an idea just how out of balance silver jewelry scrap supply is compared to gold jewelry scrap, let’s look at pathetic figures in the next component.
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