One key difference between gold and silver is that most silver is discarded. Because silver is more commonly used, it often ends up in landfills. By contrast, almost all of the gold ever mined remains in use today.
Since silver is, for lack of a better term, usually thrown away, it necessitates the need to cultivate the available supply of silver. So, let’s take a look at how the current stores of silver are holding up.
They’re not. The supply of silver is in a significant deficit. Demand for silver has outpaced production in each of the past five years. According to the Silver Institute, the most recent surveys indicate that silver demand is roughly 1.148 billion ounces, with an aggregate supply of 1.03 billion ounces.
In fact, demand for silver is growing. The Silver Institute reports that demand increased by more than 15% year over year. Most of that growth comes not from precious metals collectors and investors, but from industries that rely heavily on silver’s elemental properties.
In particular, the continuing growth of green industries relies on silver’s unmatched reflectivity and conductivity to ensure their products run at maximum efficiency. Solar panels, electric vehicles, and cell phones all depend heavily on silver, and as these items become more popular, their demand for silver is increasing.
In a vacuum, an increase in demand for silver would not be a problem. Unfortunately, it has proven untenable to produce new silver ore at levels that meet demand growth.
In fact, mine production has remained around 800 million ounces per annum in recent years, well below the metal’s annual demand. Worse yet, there may be few ways to increase mine output unless new reserves are discovered.
For one thing, existing silver mines are experiencing lower production due to a combination of declining ore recoveries and falling ore grades. In other words, the amount of pure silver that mines in Mexico and Peru can produce is declining, and it is not offsetting the cost of mining as easily.
Furthermore, regulatory changes – especially in Mexico, the world’s top silver producer – have made mining more difficult. Silver is quite tough on the environment, and Mexico has recently strengthened its environmental requirements on miners.
There is also a fundamental problem with silver mining: it is typically not viable as the base metal or target of mining operations. Almost three-quarters of all silver ore produced is recovered as a byproduct of other mining operations, like copper, zinc, or gold. The likelihood of a primary silver mining operation opening is low, and most silver recovered each year is accidental and not a priority for mining companies.
Finally, geopolitical concerns in top-producing countries – particularly Mexico and Russia – are also constraining mining operations. So, there are many challenges facing the supply side of the silver market.
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There isn’t a lot of hope for silver’s supply to catch up with its demand. Unless new silver reserves are discovered in the near future, the deficit is likely to grow.