silverseek.com / By Steve St. Angelo / Devember 18, 2012
There are two misconceptions about the silver market that are still held by many investors in the precious metals community. One is the notion that the world produces large annual silver surpluses and the other is the low cost of mining silver.Some have argued that the investors have been deceived by certain aspects of the silver industry to believe these two fabrications.
Before we get into destroying the myth (once and for all) behind the so-called silver surpluses, here is the definition of surplus:
sur·plus - the amount that remains when use or need is satisfied.
For silver to be in a true surplus, all use and need must be satisfied. However, according to GFMS and the World Silver Survey, investment demand is not a part of that calculation. This is how GFMS figures their annual silver surplus-deficit.
Mine Supply + Scrap – (Fabrication – Coin & Medal) = surplus / deficit
If we input the 2011 figures from the 2012 World Silver Survey published by the Silver Institute, this is the result:
761.6 mil oz + 256.7 mil oz – (876.6 mil oz – 118.2 mil oz) = +260 mil oz
So, in 2011, the silver market produced a record 260 million ounces of silver surplus… or so they say. In the article Silver Surplus: What Silver Surplus?, the author took the silver surplus-deficit chart from a previous article of mine and presented the data in way I had not realized.
The World Gold Council puts out a supply-demand table for gold every quarter. In the Q3 2012 table below you will see included in the demand portion of the calculations are investment bar & coin, ETF & similar and official sector purchases.The highlighted yellow rows show the total gold supply and demand. The OTC investment and stock flows are used to balance out the small surplus or deficit each quarter.
There is speculation that a great deal more “unofficial gold” has been moving from west to east in 2012 that is not being accounted in the official World Gold Council statistics. While this may be true, at least table below gives us a guideline how “official” supply and demand figures are calculated.
If we look at the 2011 column we will see that total gold supply was 4,505 metric tonnes while total demand was 4,585.7 metric tonnes, including a deficit of 80.6 metric tonnes. Thus, the world suffered a 1.7% gold deficit in 2011.
Now, if we look at the supply and demand figures for silver from the Silver Institute, we can see that investment demand does not constitute a “need” or “use” in their calculations: