Wednesday, 5 September 2012

Silver delivery problems expected

Silver delivery problems expected

Daniela Cambone (Kitco News) interviews Bill Murphy of GATA, the Gold Anti Trust Action committee.

Video link

The supply side
The 2011 & 2012 mine production forecast (see The Silver Book) didn't quite materialize, as it was based on sustainably higher silver prices.  Moreover, the lower growth trajectory of the Chinese economy has slowed down base metal mining. Since nearly two thirds of the global mine output of silver comes from gold-silver, copper-silver mines or lead-zinc-silver mines, any output reduction in those miners immediately impacts the total silver supply.
Swing producers (the primary silver mines, for which base metals are only an additional revenue) need price stability in order to get their project financed. Factor in more burdensome environmental permitting and political risks and you get an idea of why promising projects have been delayed or put on hold.

Recycling from scrap ought to increase with silver prices rising. Yet some sources of scrap are falling increasingly short. Photographic materials used to be a very important source of recycled silver. Its volume is dwindling more rapidly than anticipated. Governments have more or less run out of supply of old silver coinage taken out of circulation.

The demand side
Several new industrial silver uses are either using the metal in a very dispersed way, with a prohibitive cost of silver recuperation. Other applications (photovoltaic solar panels) are locking up considerable quantities for the lifetime of the equipment (a few decades if all goes well). While mining still provides ample supply for industrial needs, the investment demand has risen substantially... and a considerably proportion of unallocated silver bullion investments have been used for short selling by JPM and a few other financial sharks (the video tells some more).
Genuine longs, taking delivery of the metal, notice that the bars delivered to them most often were produced after going long their silver future contract. It gives an idea of how tight the market is.

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