Silver is the most plentiful precious metal. Its physical properties include adaptability to temperature change, electrical and thermal conductivity, ductility, light reflectivity and sensitivity, and malleability. Some of silver’s physical properties are the better than those of all other elements. As a result, silver is:

• used in industrial and (increasingly) medical applications where in many cases it is used in small quantities and is non-substitutable;

• used typically in small quantities that results in little price sensitivity;

• used in jewelry and silverware; and,

• is hoarded as a monetary metal.

Historically photography has represented the single largest application of silver, where over 80% of all silver used by that industry is generated from recycling. However, growth in digital photography after 2000 has resulted in decline in demand by that sector. In mid-2006 silver ETF’s emerged as a further influence on the silver demand/supply equation.

The three principal silver supply sources are mine production (71% – 2006), highly efficient recycling (substantively in the photography industry) (20% – 2006), and Government sales from inventory (9% – 2006). Mined silver is found in primary silver deposits (25% – 2006), and commingled with more economic deposits of other minerals, primarily copper, gold, lead and zinc (75% – 2006). In 2006 approximately 665 million ounces were mined, with about one-sixth of that being produced in each of Mexico and Peru.

Because approximately three-quarters all newly mined silver is a by-product, silver prices at any point in time by themselves are unlikely to lead to an increase or a decrease in other precious and base metals mining activity. This has significant implications in the prospective silver supply/demand relationship, and hence on silver prices going forward. Macro-economic conditions and prospects at any given point in time will encourage or discourage the finding, financing, development, permitting, and building of new mines and infrastructure where silver is a by-product. This, combined with ongoing reducing photographic demand and Government decisions to retain or sell silver all result in a complex supply/demand equation for silver that prospectively could result in either upward or downward pressure on price. Silver demand/supply metrics are very complex and are dependent on macro-economic broad demand/supply conditions. Investors are urged to carefully study both.

The views expressed in this Post are those of the author. They are offered to readers for information and general guidance only. They are neither intended to, nor should be taken to, constitute economic or investment advice. See Legal Disclaimer.

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