Market Curiosity: Exploring Markets And Systems

January 30, 2011

A few silver fundamentals updated. How much more silver is in the ground? USGS: About 25 years?

Filed under: Just Watching — Tags: , , , , , — Jeff Fitzmyers @ 6:40 am

Eric Sprott: We had to go into the market and buy about 15 million net ounces from third parties and it took us about ten weeks. It was a very, very long process and the one thing we can read out of it is obviously there weren’t 15 million ounces sitting around somewhere… I haven’t had time to study where the bars came from, but I can tell you by looking at the pictures of the bars they look like they came right out of the refineries. So I suspect it’s a hand to mouth situation in silver… we had an order to buy a million ounces about five weeks ago … and the delivery was going to be two months. So I think silver is as tight as a drum.

Bill Haynes: All of the major suppliers of 100 ounce silver bars are either weeks or months out, some will not even take orders.

Ed Steer highlighted Nick Laird’s Days of world production to cover short contracts chart. The 8 largest traders are short 130 days of world production and that number has recently dropped by 25%. Yet they are still crazy net long.

Friedman’s Theory by: Theodore Butler in January 2005 suggested that there were about 14-22 years left of silver mining, and 17 to 34 years for gold.

A large caveat about reserves from USGS: (which has already proven true)

Reserves data are dynamic. They may be reduced as ore is mined and/or the extraction feasibility diminishes, or more commonly, they may continue to increase as additional deposits (known or recently discovered) are developed, or currently exploited deposits are more thoroughly explored and/or new technology or economic variables improve their economic feasibility.

Current estimates superimposed on the ascending order of 2005 estimates:
EDIT: Apologies, this chart is poor. The idea is that the “Low Estimate” of Years of Production Left has been about the same for the past 6 years. In silver’s case, the low estimate has actually risen. I hope to update this chart someday.

US mine production essentially looks flat.

The USGS indicates that the US gets 65% of it’s silver from outside the US compared to 33% for gold. (page 6)

COMEX inventory from Investmenttools.com (Some don’t trust the COMEX inventory numbers.)

References:
The obvious and GARGANTUAN silver opportunity
LMBA SIFO update: Backwardation up to 6 months still
Silver’s January backwardation out to 12 months, SIFO chart, implications

Feb 27: The Silver Bullet And The Silver Shield highlighted a reply from the USGS about silver becoming more valuable

I don’t believe that the USGS would ever use the term “extinct” in regards to the depletion of a resource. The USGS estimates current worldwide silver reserves are estimated to be 510,000 tons. The global demand for silver in 2009 was about 24,400 tons. If nothing else were to change, the implication would be that we’d run out of silver in about 20 years. However, new deposits are still being discovered, and scarcity should lead to higher valuation, which should eventually lead to more exploration interest. Here’s a diagram [shown below] showing silver’s relative abundance.

While cheap silver ore may become scarce, given the right price, it shouldn’t become extinct!

Regards,

Greg Durocher
USGS Office of Communications & Publications
Science Information Services – Alaska

The only date shown is 1997

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