The Future of the Silver Market: Looking at Supply and Demand

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The Future of the Silver Market: Looking at Supply and Demand |

For any market to move up, more buying pressure is needed. Buying pressure comes through several avenues. In the case of silver education and awareness are required because it is the best value investment in the commodity sector. That being said, the rise of the subreddit group, Wall Street Silver, is starting to expand into what I believe is the most important community to increase the awareness of silver investing. WallStreetSilver symbolizes the proactivity of the younger generation that understands silver and the benefits of an honest financial system and is determined to spread the word.

The GameStop short squeeze was a significant headline this year. It forced the elite in the financial system to recognize main street investors are capable of far more than once believed. The silver short squeeze may not be playing out as fast as that, but it’s important to recognize that the historic shorting of silver won’t be undone as fast as that of a stock like GameStop. There is more resistance to break down — but it’s happening.

Let’s talk about supply and demand…

Just last year, in 2020, the amount of silver purchased for investment in commercial bar form — what the ETFs take into consideration — was the highest on record by far, around 300 million ounces. Factoring in the retail market demand, which by metric was roughly 200 million ounces, we end up at a stifling total of 500 million ounces. That’s unheard of. I have studied the silver market for many years now, but I have never seen that kind of physical demand in the silver market in my lifetime.

That was last year. If we continue on this basis, going forward in 2021, there is little doubt in my mind that a silver supply squeeze will materialize. Why? Because it’s important to account for the other half of the market: the industrial side. Industrial demand typically lands at around 500 million ounces, and while industrial demand was affected as the global pandemic played its course, this is only a temporary disruption.

The other part of the market, silverware and silver jewelry, didn’t go away. We had a deficit in 2020, and it’s likely we’ll see another deficit in 2021. The facts speak for themselves. Things are happening in the silver market that do not typically occur: the global physical silver demand putting pressure on the COMEX, the rare occurrence of a premium on commercial bars, and the retail market is so backlogged that well-established dealers like the Perth Mint are unable to meet demand in a timely manner. This all goes to show that the physical demand on the retail side is strong.

We know there are approximately two million 1,000-ounce silver bars that make up the silver market; a limited and finite supply. When you consider the fact that the silver market is fully determined by the commercial bar market — as everything else is a derivative — you realize how tight the market is getting. Coupled with the rising strength of demand, the game is now being revealed: the curtain is being pulled back, people are seeing the truth, and they want to understand the whole story.

There’s a lot that can happen in the future that we may not be able to foretell. All we know are the facts, which reveal that we are in a position where the silver market is getting tighter as far as the amount of silver available for delivery and as far as how many participants are able to spread this.

If the silver price rises above $30 an ounce, I present an educated guess. Most of the industrial silver users get their bullion directly from the industrial side, never from the COMEX unless it’s necessary. But once the flight to silver begins, it could open the floodgates and spill over to the investment supply. If that happens, there are some probable outcomes. One such outcome is that the government could step in to implement a form of a controlled mechanism.

If there’s anything extreme in the financial markets, it is the silver market and how undervalued it is. The second and more important fact is how much risk is in the traditional wealth investments- stocks and bonds. Silver will mitigate that risk and for any knowledgeable investor, a proper weighting into the precious metals will preserve their financial well-being.

A look back at history reveals this clearly. It’s indeterminable how much of a demand there could be because silver is essential, irreplaceable, and absolutely necessary for industrial purposes. And, if silver stackers are not willing to give it up until the price is proportional with what they feel it’s worth, it could be a very tight situation indeed.

I discussed these topics, and more — such as the historic strategic silver stockpile of the USA, other government silver stockpiles, JP Morgan’s naked short in silver and the CFTC’s lack of action, and the silver mining stock sector — in a recent interview with Ronan Manly of BullionStar. You can watch the full interview here.

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