The event that will transform the Silver Market is when BIG MONEY finally moves into the sector in a BIG WAY. Even though the precious metals prices experienced new highs in 2011, this was due to only a small fraction of investor demand. The overwhelming majority of investors were still in playing in the Stock, Bond and Real Estate Markets.
However, the time when BIG MONEY finally moves into the precious metals sector grows closer each day. Michael Belkin discussed this in his recent interview on Kingworld News. Michael provides a very expensive newsletter to large clients (institutions and Hedge Funds) on what they should be buying.
During the end of 2015, Michael put a new gold stock newsletter in which he stated gold stocks were going to really take off in the beginning of the year. A month later he came out with a group of silver mining stocks that he forecasted would experience tremendous gains. Well, Mr. Belkin HIT THE NAIL ON THE HEAD.
Both the gold and silver mining stocks have performed incredibly over the past 4-5 months. Mr. Belkin believes this is just the first inning of the precious metals bull market. Moreover, Mr. Belkin believes when BIG MONEY finally moves into the precious metals market, it will really drive the prices to extremely high levels.
Before we get into understanding how BIG MONEY will impact the silver market, let’s look at interesting trends.
Two Interesting Trends In the Silver Market
These next two charts provide some insight of what is taking place in the silver market. The first one is an updated chart on global silver bar and coin demand. Before the first crash of the U.S. financial and economy in 2008, global silver bar and coin demand was 56 million oz (Moz). However, this changed in 2008 as investors purchased nearly four times the amount in 2008 at 192 Moz:
Even though there were some years were physical silver investment declined (2009 & 2012), the overall trend has been higher. As we can see, investors purchased a record 292 Moz of silver bar and coin in 2015. Basically, investors are buying physical silver at nearly six times the rate they were before the financial and economic turmoil in 2008.
NOTE: This chart is using data from the GFMS Team at Thomson Reuters based on including private silver bar and coin demand. This was the first year that private silver bar and coins were included in the data. Thus, several prior years were revised higher due to adding in estimated private silver bar and coin demand to the total.
Thus, investors continue to purchase record amounts of physical silver investment even though the price has declined over the past five years.
Now, the next chart is more interesting for different reasons. I was actually surprised by the data when I put it all together. The amount of global silver scrap that enters the market is based on price. The higher the price, the more silver scrap makes its way into the market.
However, if we look at the big drop of silver scrap in the past two years, we see a troubling trend:
When the price of silver ranged between $11.50 and $15 from 2006-2009, the amount of global silver scrap was over 200 Moz. Then as the silver price moved higher, so did the amount of silver scrap. When the average annual silver price reached a record $35.12 in 2011, the amount of silver scrap also hit a record of 261 Moz.
Of course, as the silver price declined, so did the amount of silver scrap. However, if we look at the amount of silver scrap for 2014-2015 and compared them to the figures for the 2006-2009 time period, we see a much different picture. The silver price for 2014 ($19) and 2015 ($15.7) were both higher than the years from 2006 to 2009, but the scrap supply was much less.
In 2014, global silver scrap supply was 30+ Moz less than the 2006-2009 average, and over 50 Moz less in 2015. So, the question is… why is silver scrap supply falling so much? By analyzing these figures and through conversations with the USGS silver specialist, I believe a lot of the high-quality silver scrap was already sold into the market. Even though there will be additional volumes of silver scrap in the future, it will take an even higher price to bring less quality (more expensive) supplies into the market.
Total Physical Silver Investment Is Peanuts Compared To The Rest Of The Market
Now that we understand silver bar and coin demand is surging to record highs while silver scrap supply falls, this last chart really puts it all into perspective. If we add up all the physical silver bar & coin demand from 2008 to 2015, it equals a measly $35 billion:
That’s correct. I took the total demand for each year and multiplied it by the average annual silver price. The total amount of physical silver bar & coin demand was 1.57 billion oz, which was worth $35 billion. That’s correct, total global physical silver investment equaled a lousy $35 billion. That’s not much in the whole scheme of things if we compare it to the broader stock, bond and real estate markets.
Furthermore, if we include the amount of Dollars that trade daily on the FOREX market, it’s even more hilarious. According to Fxweek.com, daily trading on the FOREX market was $5.3 trillion in 2013. I would imagine that figure has increased since then.
Okay, if BIG MONEY moves into physical silver and only invests $100 billion, it would consume three times, or 4.71 billion oz of silver. This is based on the total investment of $35 billion from 2008-2015. Basically, three times the investment… three times the amount of silver needed.
Unfortunately, that amount of silver will not be readily available. I would be surprised if BIG MONEY was able to acquire 500 Moz. Which means, if supply is tight, then PRICE MOVES MUCH HIGHER.
This is not a matter of “IF”, it’s a matter of “WHEN.” This last chart should make investors realize just how OUT-OF-WHACK the system has become. In just six months, total Government Bond’s that have negative interest have almost doubled:
In the beginning of 2016, the governments of the world had $5.5 trillion in bonds with negative interesting. Then just five months later, it surged to $10.5 trillion. This is not a good sign at all. For the amount of global govt. bonds with negative interest to nearly double in less than a year, investors should be extremely worried.
While Central Banks will continue to issue a bunch more bonds with negative interest, this is not a long-term sustainable policy. When the system finally cracks, BIG MONEY will move into silver that will totally transform the market. How high the price of silver goes… will be a sight to see.