You are here

Jason Hommel: Silver has run out -- now

Section: Daily Dispatches

By Jason Hommel
Silver Stock Report
Wednesday, August 20, 2008

For a long time, people have been asking me: When will silver run out?

They know that the world uses up more silver each year (about 850 million ounces) than the world mines (about 600 million ounces) and that existing demand can be met only by selling existing inventory (such as recycling 200 million ounces, or government's selling 50 million ounces), so it's a natural question to ask.

The question is not implying that mankind will be unable to mine any more. Rumor is that there remains about 14-16 years of silver in the ground at "current" prices; while at much higher prices, silver mining becomes more economic, and more deposits can be added to that "in ground" reserve number.

So the question is really just asking: When will we run out of "excess" above-ground silver that can meet the supply/demand gap so that the price will begin to really take off upward?

Clearly, the world has silver in supplies above ground, and such silver supplies are dwindling in order to meet the supply/demand gap. About two years ago the world started adding to above-ground silver supplies as silver investors started buying (and the silver surveys label investor buying as a "surplus"). However, silver recycling was still greater than new stockpiling, which continued to deplete overall silver supplies.

A question such as "When will silver run out?" cannot really be answered, since nobody really knows how much silver there is, who owns it, and at what price they are willing to sell it. Again, that brings us back to the nature of silver; it is inherently private wealth, held anonymously. Estimates on above-ground silver, in refined, deliverable form, have ranged from 300 million ounces to 1 billion ounces to a high of about 4 billion ounces if you include jewelry and flatware -- and up to 20 billion ounces if you include all forms of silver that have not ended up in landfills, out of the total of 43 billion ounces of silver estimated to have been mined in all history.

Further, nobody is arguing that the last bit of silver that exists needs to be consumed before the price rises substantially. The question is really about: When will all the unwanted silver, in so-called "weak" hands of holders who don't really want it, be sold, to allow the price to rise to meet the majority of the expectations of the remaining wise investors who have planned to store up some of the rare stuff?

But finally I think the answer has arrived. The answer is "now!"

Silver has run out now! Or, in other words, most of the cheap silver has run out.

There are two excellent articles on the shortage of silver that I'd like to bring to your attention if you have not already seen them:

This one is posted at Seeking Alpha, "The Disconnect Between Supply and Demand in Gold and Silver Markets":

The article review how the silver shortage is also affecting India. It also covers the paper silver fraud that is common and "standard business practice" at Wall Street brokerage houses.

This next article is short and powerful, and written by a coin dealer, "The Disconnect Between The Physical Gold and 'Paper Contract' Markets":

What's amazing is that last year net physical silver investment demand was estimated to be about 30 million to 60 million ounces, or about $1 billion worth of silver.

Today, with 90 percent of the people in the United States being concerned about inflation and awareness growing about the danger of banks going bankrupt, about 90 percent of the $14,000 billion of money in the banks should be seeking to buy silver or gold.

So where do you think silver prices are headed? How can most of $14,000 billion enter a market of $1 billion that is already suffering a shortage and prices not go up -- a lot?

And oh, yes, what about that current low price?

There's a short story that goes something like this. A lady wants to buy sausage. There are two butcher shops next to each other. One advertises $1.99/lb., the other advertises $2.99/lb. She goes to the $1.99/lb. shop first. But there's no sausage; the shop is out. So she goes across the street and sees sausage for $2.99/lb. and promptely complains about the price. She asks the butcher: "Why don't you sell it for $1.99/lb like the other guy?" The butcher answers, "Lady, when I'm out, mine is $1.99/lb. too!"

Price means nothing if you can't get the product. Many people are still sending money to dealers who will take your money but have no silver and no idea when they can get it.

Be very careful about ordering silver right now. Demand to know exactly when the dealer can deliver. If the dealer can't guarantee to make delivery within a week or to give you all your money back, he probably doesn't have it.

Here's what I suggest. Find your local coin shop and go there. Or visit the dealers who are recommended at:

In fact, now might be a good time to meet up with other Silver Stock Report readers.

I suggest that everyone visit his favorite local coin shop on Tuesday, September 2, at 1 p.m.

* * *

Join GATA here:

Hard Assets Investment Conference
Tuesday-Wednesday, September 9-10, 2008
Mandalay Bay Resort and Casino, Las Vegas, Nevada

Silver Summit
Thursday-Friday, September 18-19, 2008
Best Western Coeur d'Alene Inn
Coeur d'Alene, Idaho

New Orleans Investment Conference
Thursday-Monday, November 13-18, 2008
New Orleans Marriott Hotel

* * *

Help Keep GATA Going

GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at