The fact that the world consumes more silver than it produces is an alarm signal that has characterized the silver market for five years now. A quick remedy is not in sight, because that would require either a sharp drop in silver demand in the coming years or a rapid increase in mine production.
Both are completely illusory in the current situation. Demand for silver is rising instead of falling, and mine production is falling instead of rising. The longer this unsatisfactory situation continues, the sooner the situation threatens to become uncontrollable.
Uncontrollable in this context primarily means that the silver price could skyrocket to astronomical heights as a result of panicked reactions from individual market participants. For those who think this is impossible, a study of the development of palladium prices around the turn of the millennium is recommended.
When Ford Panicked, Palladium Price Broke the $1,000 Threshold
Russia holds a dominant position in palladium, accounting for 40 percent of global production. The Soviet Union exploited this power by declaring its own production a state secret, keeping it hidden from the West, and supplying the market with less palladium if the price was not high enough for them.
Shaped by years of this practice, Ford’s buyers in the late 1990s were concerned that Russia might follow in the footsteps of the Soviet Union and continue the practices exercised during communism. To still have enough palladium available for their own catalytic converter production, Ford bought whatever palladium it could get on the market, at any price.
The consequence was an extremely steep price increase. It eventually surpassed the magical $1,000 per ounce mark, which at the time was considered unattainable. After the panic ignited by Ford subsided, the palladium price returned to $250 per ounce by 2005.
History Doesn’t Repeat Itself, but it Rhymes
Is such a situation also conceivable for the silver market? The answer to this question is a clear yes, because the silver market is a very tight market and there are no longer large storage capacities that could be drawn upon in case of emergency. The world has drawn on these over the past five years to balance the persistent deficit between supply and demand.
A crisis, similar to the one Ford triggered in the palladium market more than 25 years ago, could be triggered in the future by a Chinese solar module manufacturer or a company from the electronics or military technology sector. All of them need silver, and they—just like Ford—might be willing to buy it on the market at extremely high prices to secure their production.
Anyone who then knows that several major Western banks are short on the futures market with more than five world annual productions, meaning they have sold silver on futures that they do not own themselves, will suspect that the $100 mark for silver could be reached very quickly under certain circumstances.
This is the edge of the abyss that the world is heading towards at high speed. Those who see it and stock up on physical silver and one or another silver mine in time have a good chance of playing a leading role in the new James Dean memorial film “They Know Exactly What They’re Doing”.
Silvercorp Metals and Silver47 Exploration: Two Interesting Silver Stocks You should Definitely Look At
The prices of the larger silver producers have already gained some momentum. While the rising tide, i.e., the steadily increasing silver price, lifts all boats, silver producers like Silvercorp, who pay particular attention to their costs and thus to the level of their margins, are ahead in every price scenario.
Mine developers and exploration companies are also extremely interesting. Their value is primarily measured by the quality of the project, so the size of the already proven resource is paramount here. Their value inevitably increases with every US dollar that an ounce of silver becomes more expensive.
Silver47 Exploration not only has such a resource, but is particularly interesting as an investment for investors because the company’s market value, relative to the individual ounce of silver proven in the ground, is exceptionally low compared to the industry average. This, similar to Silvercorp Metals, offers potential for further price increases in the future.
