The Silver Institute is a nonprofit association that “includes leading silver mining houses, refiners, bullion suppliers, manufacturers of silver products and wholesalers of silver products.” It claims to be the silver industry’s “voice in increasing public understanding of the many uses and values of silver.”
Every year, The Silver Institute publishes its
World Silver Survey.
One of these years, The Silver Institute will have the survey compiled by someone who actually understands the silver market.
The latest example of this pseudo-analytic fluff, the
World Silver Survey 2020 is loaded with inaccuracies and inconsistencies.
Let’s start with the data.
As noted in a March 25th Dynamic Wealth article (
Silver Market: Final Countdown to Price Explosion), The Silver Institute itself has been reporting
a net supply deficit in the silver market every year (the “net balance”).
Suddenly in 2020, with a new
“consultant” (Metals Focus)
compiling the same data, the supply deficit has magically reversed into a “surplus” for five consecutive years (2014 through 2018).
Remarkable. Instead of “increasing public understanding” of the silver market, The Silver Institute has generated complete confusion.
What is the annual supply of silver? What is the annual demand for silver? Who knows? You certainly can’t get any definitive answers from The Silver Institute.
Then there is the shoddy analysis within this report. It begins…
Over the few weeks running up to the time of writing (in early April), the COVID-19 crisis has had a profound impact on normal ways of life, economies and financial markets around the world. What had originally been seen as a China/Asia problem quickly evolved into a global pandemic, resulting in large swathes of the world population being forced to operate under some form of restrictive activities. The impact of such disruptions on the world economy is already stark. Unsurprisingly, the crisis has triggered some of the most aggressive liquidations seen in history. Equities, high yield debt and industrial commodities were particularly hard hit, with the S&P 500, for instance, falling by 35% from peak to trough over February-March.
Against this backdrop, one might have expected silver to do well. The metal’s traditional correlation with gold (as well as its own safe haven attributes) would suggest that the silver price ought to, at the very least, only suffer modest losses, if not in fact rally, as investors rotate into precious metals.
Instead, silver (and indeed also gold) suffered selling pressure similar to other pro-cyclical assets. Its price fell to its lowest level in more than a decade, at the peak of the panic in global markets around mid-March. Silver also performed poorly relative to gold, with the gold:silver ratio briefly touching an all-time high of 127. A number of factors contributed to this, including professional investors’ need to raise cash, the drag from its link to base metals and silver’s own underlying fundamentals. [emphasis mine]
Let’s pick apart this Revisionist fiction.
“Against this backdrop, one might have expected silver to do well.”
Really? Were any of the pseudo-analysts who wrote this even
alive during the 2008 financial crisis?
In 2008, in nearly identical financial circumstances, the price of silver was driven 60% lower, bottoming at roughly $8 per ounce. Back to the
World Silver Survey 2020.
...Instead, silver (and indeed also gold) suffered selling pressure similar to other pro-cyclical assets. Its price fell to its lowest level in more than a decade, at the peak of the panic in global markets around mid-March.
These pseudo-analysts act like this is some sort of (disappointing) surprise in the silver market when the price action is
exactly what we saw during the last financial crisis.
During the current financial crisis, the price of silver plummeted from approximately $19 per ounce to as low as $11.50. That’s roughly a 40% plunge. So, in fact, silver performed significantly
better in the recent panic than during 2008.
In “analyzing” the silver market for 2020, Metals Focus appears to be completely oblivious as to what happened with the price of silver both during and
after the last financial crisis.
Following the irrational plunge in the price of silver during the actual panic, the silver market then began an epic rally, rising to over $49 per ounce by April 2011. None of this closely related history is even noted in the World Silver Survey 2020.
Their attempts to “explain” the current price action are even more amateurish.
A number of factors contributed to this [decline], including professional investors’ need to raise cash, the drag from its link to base metals and silver’s own underlying fundamentals.
Written by people with no understanding of the silver market or basic economic fundamentals.
“…the drag from its link to base metals”
It requires further explanation to show how absolutely wrong this is.
Thanks to the historic under-pricing of silver, over 70% of the world’s annual supply now comes as a byproduct of other metals mining – mostly base metals.
Because of the collapse in economic activity, prices for these base metals (copper, nickel, zinc, and lead) have all fallen significantly.
These lower metals prices will lead to mine closures. Health concerns are taking even more mine production offline.
The net effect of all this is a significant reduction in the amount of silver produced as a byproduct from these mining operations. That is
bullish for the price of silver.
“…and silver’s own underlying fundamentals”
It is somewhat difficult to argue “fundamentals” with pseudo-analysts who magically revise deficits into (supposed) surpluses. However, putting aside the five years in question when the silver market was allegedly in surplus, the silver market has been in a perpetual supply deficit for the last 30 years.
Between 1990 and 2005 alone, official silver inventories plummeted by over 90%.
The “underlying fundamentals” for the silver market have been more bullish than almost any other metal, not merely for years but for decades.
That’s the shoddy analysis from just the first few paragraphs of this exercise in futility. It doesn’t get any better in the remainder of this obfuscation of the silver market.
Looking ahead, roughly 80% of silver’s demand comes from areas likely to suffer as a result of the COVID-19 crisis. As detailed in Chapter 2, while we expect physical investment to grow (and indeed accelerate), all other demand areas are forecast to suffer losses this year.
Wrong.
Using Metal Focus’s own data, it estimates total silver demand for 2020 at 1.083 billion ounces (including “net investments in ETPs”). Total net physical demand and net investments in ETPs are projected to reach 335.8 million ounces.
That’s
31% investment demand out of what Metals Focus estimates as total 2020 silver demand.
It is only if we subtract the silver ETP investing that the percentage of investment demand falls to 21%.
What is Metals Focus implying here? Are investments in silver ETPs not “investments”? Or are they not “silver”?
This consultant is just as clueless in its attempts to estimate purely physical demand.
Metals Focus expects these declines [in overall demand] will be partly offset by a 16% increase in bar and coin demand.
Back in the real world, here is what was taking place with
bar and coin demand once investor fears spiked at the beginning of March.
Sales of the one-ounce American Silver Eagle coins were at 3.1 million so far this month [March 19th], as of Wednesday, compared with total sales of 650,000 in the month of February,
according to data from the Mint.
That’s not a “16% increase” in demand. That’s
a 400% increase in demand, in just over half a month.
Thanks to this explosion in demand, the market for physical silver decoupled from the paper silver market.
“Premiums” to purchase real metal have been as much as
100% higher than the artificial paper price for silver. Most major dealers have exhausted their supplies of the most popular silver bars and coins.
Yet Metals Focus sees this demand rising by only 16% in 2020.
It is a complete mystery as to why The Silver Institute brought in this new consultant to compile its 2020 annual report on the silver market.
The
World Silver Survey 2020:
- Cannot be relied upon to accurately compile and report data
- The analysts for its author have no understanding of supply/demand fundamentals
- They have (apparently) no knowledge of the recent price history of the silver market
- And they are oblivious as to what is taking place in the (real) market for physical silver today
Silver is a very exciting investment opportunity in 2020. However, one would never realize this through reading the World Silver Survey.
