Silver Shortage: A Closer Look at Market Dynamics Heading Into 2024

Recent reports from the Silver Institute have sent ripples through the market. Let’s simplify the complexities, focus on key takeaways and what it might mean for the silver market and silver price price going forward.

The topic of silver shortage has been center stage in recent weeks, particularly after the Silver Institute released its later physical silver market data (pdf). It evoked a lot of reactions as evidenced by data driven posts on social media (here and here).

Let’s review the facts, and add commentary about the market dynamics that go a step further than the data points served by The Silver Institute.

Understanding the Silver Market Shifts

The Silver Institute’s update reveals a decrease in total silver supply due to production losses at major mines, notably the Penasquito mine. On the flip side, non-investment demand has surged, primarily driven by industrial use, reaching an all-time high. Despite slight dips in jewelry and silverware demand, the crux lies in the booming industrial demand, particularly for photovoltaic solar cells.

Do The Numbers Tell A Silver Shortage Story?

Total silver mine production is now at its second-lowest in a decade, pointing to an undeniable undervaluation of silver. The fascinating twist lies in the fact that as mine supply shrinks, industrial demand skyrockets, echoing a clear message: the current silver price is too low to match the market realities.

Investor’s Perspective

Looking at supply and demand, we find a mere 123 million oz left for silver investors after accounting for non-investment demand. In a world where trillions circulate in investment markets, this limited silver pool, valued at less than $3 billion, raises eyebrows. The reality is that the pool available for investors is a fraction of the total silver produced.

Silver’s Dual Nature

Silver’s unique dual demand as both an industrial commodity and an investment asset plays a crucial role. While industrial demand remains relatively stable, investment demand, driven by market sentiment and price movements, holds the key to the silver market’s future.

The Road Ahead & The Unfolding Silver Shortage

While the COMEX silver price setting persists, often referred to as price manipulation by commercials, the deepening physical shortage cannot be ignored. The clock is ticking, and the silver market is at a crucial juncture. The Silver Institute’s bullish data adds weight to the argument that higher silver prices are not a matter of if but when.

Silver Price vs. Physical Silver Market Dynamics

While some may point out that last week’s silver price action was abysmal, we would recommend to focus on what really matters.

Yes, gold and silver price action was volatile. Particularly in silver, an epic secular breakout was stopped cold. Below is the monthly silver price chart, the current monthly candle is not complete (even not halfway this month). Still, what we can clearly see is that last month’s candle closed in breakout territory. In fact, an epic secular breakout started, on the last day of the November of 2023, but momentum was stopped cold early December. It happened on Sunday night, December 3d, in the futures market. Clearly and visibly, commercials did not want to allow for the epic breakout to sustain. The time is not right, not yet.

This is in contrast to the physical silver market where a silver supply shortage is already here. It simply did not reflect in price, not yet, it is a matter of time until it happens. All that commercials desire is less participation of speculators.

We recommend to not be influenced by the games that are being played in the paper market, and let the physical market do its work. Sooner or later, the ‘powers that be’, who are very well aware of the current silver supply shortage, will find the right timing to benefit from it, leaving speculators behind. As small investors, we should give time and space, eventually the price of silver will reflect the physical market situation. Moreover, the silver price chart, below, has a very clear and outspoken secular bullish setup, it is a matter of time (WHEN, not if).

Conclusion

Within these silver market dynamics, the looming silver shortage stands out as a ticking time bomb. Despite COMEX silver price setting, the law of supply and demand will eventually prevail. As we approach a true silver supply shortage, the silver market’s true potential awaits, ready to reshape the price setting dynamics and elevate silver to new heights.

In a nutshell, the silver shortage narrative is not just about market data; it’s a thrilling story of a market poised for a significant shift. The question now is: when exactly will this translate into the long overdue silver surge?