Silver Institute Survey
Silver Stock Report
by Jason Hommel, May 23, 2007
On May 14th, the CPM group issued their “CPM Silver Yearbook 2007”, and I commented on it in my report, http://www.silverstockreport.com/2007/230.html
Today, the Silver Institute issued their annual “Silver Survey” of supply and demand.
A notable difference between the surveys is the estimated annual mine supply.
The Silver Institute lists mine production for 2006 at 646.1 million ounces.
The CPM group estimated 2007 mine supply to increase 3% to 520 million ounces.
Maybe I don’t understand the nuances of how they are counting, but that’s a big difference.
Nevertheless, both surveys put net investment demand for 2006 at about 60 million ounces.
The Silver Institute put 2006 net investment demand slighly lower than in 2005, while the CPM group listed net investment demand up in 2006.
The Silver Institute put net government sales at 77 million ounces, more than net investor demand.
In sum, both surveys show that the silver market is very small, and very tight. Silver consumption vastly exceeds annual silver mine supply, and the difference is largely met by silver recycling.
I’d like to make two big main points. First, people are unaware of the fundamentals, and second, the fundamentals are fantastic.
First, despite the different numbers, I think the surveys are mostly correct. They are sponsored by both silver producing companies and silver using companies, so the sponsorship bias should be neutral. But these are industry surveys mostly produced for people in the industry. The CPM group and Silver Institute are not marketers, nor do they have large marketing budgets. They do survey work.
Therefore, most silver investors are not familiar with these surveys, nor who produces them. But I think they should be. (But I’m biased as a silver investor.) I’ve polled silver investors at the mining shows who have come to hear the guy from “silverstockreport” speak, and perhaps less than 5% of silver investors have heard of the CPM group or the Silver Institute, by a show of hands. This is a very bullish signal. The silver fundamentals as presented by these two silver surveys are fantastic. If silver investors are unaware, then likely most of the world is unaware of the fundamentals for silver.
Second, the fundamentals clearly show that there is no room in the silver market for any significant investor demand. Net investor demand was listed by the Silver Institute as 64 million ounces. At an average 2006 price of $11.55, 64 million ounces was $739 million of net silver investment demand.
M3 is calculated to be $11.5 trillion.
World Net Silver demand in 2006, as a function of U.S. money in the banks, is ($739/$11,500,000), which is 0.006% of U.S. money.
If the wider public became aware of the silver fundamentals, net silver investment would be much higher, and so would silver prices. With a market this tight, and the world this unaware, the silver price will probably rise much higher than anyone can predict.
Silver prices were up 58% in 2006 at $11.55 per ounce, up from an average 2005 price of $7.31 per ounce. Prices in 2007 now seem cheap on the charts having recently dipped to about $13.04 today.
And given that investors tend to buy more of things that show positive investment returns, net silver investment demand can continue to increase for a long time, helping to cause the very returns that investors seek.