World Silver Survey 2018

[KDave]

https://www.silverinstitute.org/wp-content/uploads/2018/04/WSS-2018.pdf

Here we go chaps, supply and demand figures from the silver institute. Perhaps the last bastion of the (vested interest) bullish picture on the most bearish of metals. 

Not had chance to read it yet, my guess in advance is that silver investment demand is down massively, industry is staying put (maybe up in photovoltaics again), jewellery is staying put - yet somehow supply is in a deficit for the 25th year in a row despite low prices. I'll have a read later, enjoy  

[Stooch]

Thanks for posting this.

I’ve pulled a few bits out to comment on below. The whole report seems more balanced than I had expected with a relatively ‘honest’ feel to it. With so many statistics to play with however, it’s so easy to bend this report any way you want to to prop up your perspective view.

Here are a few points I found interesting:

 

“Despite the slight decline in the annual average price, the LBMA silver price still managed to gain 3.8% throughout the year, mostly because of a weaker dollar. However, silver’s price performance fell behind that of gold, reflecting the market’s risk-off attitude over much of the year.”

There is regular mention of investor’s move to gold in times of risk or uncertainty - I’m not sure if this weakens the case for stacking silver rather than gold if this is true. Obviously a hedged risk is a better balance, for security in your stack/portfolio but does this point undermine the argument for the huge silver stacks we all crave. Large piles of silver can trick us into feeling more secure and wealthy than we may otherwise feel, unless that is the GSR moves significantly, which if people move to gold in a crisis may not occur. I’m interested in other people’s view on this as I feel a bit under-informed on this point.

 

“Silver coin and medals fabrication tumbled by a sharp 35% in 2017, to hit 79.4 Moz (2,471 t), the lowest level since 2008, led by subdued demand from the western hemisphere on the back of growing risk appetite and rallying equity markets, which saw investors holding back from buying zero-yielding assets.”

Two interesting points here. The first being that coin production worldwide is down significantly in recent years which may prop up the argument for investing in numismatics from the current and last few years. I’ve always just bought bullion but this could potentially be an area to exploit if you’re investing for the long term, it could form part of a pension fund if scarcity increases desirability and therefore price. It’s still a bigger risk to take than stacking bullion in volume but the upside may be more rewarding. The second point here is investors holding back from buying zero yielding assets which gold and silver never are, they are commodities and stores of wealth. It seems misinformed to be discussing silver coins as an asset that yields when it’s a commodity, I feel I may be missing some information about markets here if investors are viewing silver as a yielding asset, unless they are referring to silver markets where people are trading in non physicals, in which case why discuss in a paragraph about coins?

 

“Industrial demand for silver increased for the second year in succession to reach 599.0 Moz (18,632 t), the highest level since 2013. Another year of significant expansion from the photovoltaic sector to a new record level was the chief architect of the increase. This was, however, not the only market to enjoy a renaissance. A stronger global economy and robust demand from the semi-conductor market led to improved offtake in electrical and electronics as well as brazing alloys and solders. Demand from photographic applications continued to ease, while demand from ethylene oxide (EO) was the largest casualty in this sector, falling by a third from 2016 volumes.”

I think as stackers our argument for silver’s use in industry may be misjudged in a shtf scenario or in a huge crisis. A lot of industrial use is linked to the production of consumable goods (not just electronics, carpets and other items too), in a crisis the demand won’t be there and therefore the need for silver to use in industrial processes will drop off dramatically. The only rationale for silver at that point would be transactional money, which may well be a valid argument, but I’d love to others opinions on this. 

 

“While on the surface, the high ratios of gold to silver and to platinum may suggest that the latter two metals might be better investments compared to gold in the long run on a “catch-up” argument, we should not ignore gold’s role as a safe haven, and that some smart money has been hedging against geopolitical risks and potential correction in equities.”

I found this one a really interesting point about the GSR. Although there may be a future correction we could be just kidding ourselves that it would be as significant as we’d like, if there is a flight to gold in a crisis. It could also be a stronger argument for stacking gold instead. I’d love to hear what you guys think.

 

[KDave]

Silver is not like gold in my view;

The weight of demand for silver as an investment fluctuates widely from year to year and even in 'good' years for investment, the majority of demand still comes from Industry, it is the primary driver. Demand for silvers utility is primary, followed by a secondary crowd of which the majority are speculators that wax and wain depending on interest (price movement). Now the investment crowd are still a significant portion of demand and under the right circumstances could overtake industrial demand, but for decades now and even in the run up to 2011, this has failed to become reality, so can be seen as very unlikely. This large secondary demand/crowd of speculators makes silver different from say copper, platinum, palladium, rhodium which are all driven by industrial markets and have comparably far smaller investment demand, almost negligible. This presents silver as a hybrid metal, with greatest weight on its utility value and not on its role as a money. The huge swings in investment demand also tell me the majority of buyers are not buying it to store value in the traditional sense of money, they are buying to make currency gains. The swings in investment demand are indicative that silver is acting like a normal market (chasing on the way up, selling on the way down).

From this picture you can see that silver is also very different from gold which is the other way - industrial demand is a distant second to investment demand which makes up by far the majority of gold demand (as it has been since forever). 

There is an investment case for silver that can be built, but it should not be built on the idea that 'silver is money'. I doubt silver will be part of a monetary system following a reset precisely because it is so valuable in terms of its Utility (as the market is telling us). Gold on the other hand is acting as money now, and could be used in the future as money. Even if it is not part of a monetary system, it will continue to act as a value store until the day we can create the stuff from thin air. 

[Martlet]

1 hour ago, Stooch said:

...The second point here is investors holding back from buying zero yielding assets which gold and silver never are, they are commodities and stores of wealth. It seems misinformed to be discussing silver coins as an asset that yields when it’s a commodity, I feel I may be missing some information about markets here if investors are viewing silver as a yielding asset, unless they are referring to silver markets where people are trading in non physicals, in which case why discuss in a paragraph about coins?

Your'e not missing anything, its simply that something can belong to different classifications.  Commodities are materials that are consumed, used in production of something else. Coming out of the ground silver and to lesser extent gold are just metal commodities which will go into products.  Assets are items of value, so when silver/gold ore is made into a coin or bar, we class them as assets, and there is no yield on them since they do not earn money.

Interesting points on use of silver and demand in a major economic downturn, dont think that's given enough consideration.

[Stooch]

3 hours ago, SteveDavies said:

How true is this info?

 

what are the interests of those providing the info?

The report is from the Silver Institute (never heard of them before today though), but felt more balanced than I had expected based on their vested interests. As for the accuracy of the info, who knows? There's a lot of stats in their and unless you check them all yourself you have to accept them or just check the ones you think are relevant. It would be interesting to get a sceptical experts view on the report however.

 

[Stooch]

2 hours ago, KDave said:

Silver is not like gold in my view;

The weight of demand for silver as an investment fluctuates widely from year to year and even in 'good' years for investment, the majority of demand still comes from Industry, it is the primary driver. Demand for silvers utility is primary, followed by a secondary crowd of which the majority are speculators that wax and wain depending on interest (price movement). Now the investment crowd are still a significant portion of demand and under the right circumstances could overtake industrial demand, but for decades now and even in the run up to 2011, this has failed to become reality, so can be seen as very unlikely. This large secondary demand/crowd of speculators makes silver different from say copper, platinum, palladium, rhodium which are all driven by industrial markets and have comparably far smaller investment demand, almost negligible. This presents silver as a hybrid metal, with greatest weight on its utility value and not on its role as a money. The huge swings in investment demand also tell me the majority of buyers are not buying it to store value in the traditional sense of money, they are buying to make currency gains. The swings in investment demand are indicative that silver is acting like a normal market (chasing on the way up, selling on the way down).

From this picture you can see that silver is also very different from gold which is the other way - industrial demand is a distant second to investment demand which makes up by far the majority of gold demand (as it has been since forever). 

There is an investment case for silver that can be built, but it should not be built on the idea that 'silver is money'. I doubt silver will be part of a monetary system following a reset precisely because it is so valuable in terms of its Utility (as the market is telling us). Gold on the other hand is acting as money now, and could be used in the future as money. Even if it is not part of a monetary system, it will continue to act as a value store until the day we can create the stuff from thin air. 

Hmmm food for thought. Maybe a bit more attention from me on gold in the future.

[KDave]

8 minutes ago, Stooch said:

Hmmm food for thought. Maybe a bit more attention from me on gold in the future.

Please bear in mind this is just my opinion and could be very wrong. I think the silver is money idea is a hard sell on the demand numbers of today's silver market. I don't think silver ever really did fulfil the role outside of its use as a form of circulating currency for smaller denominations of gold, just as copper was used for smaller denominations of gold. Silver represented fractional gold by weight of silver, and so held value in that link, just as today the market sees gold moving higher and jumps into silver. There is a link through expectation but it is not because the metals have the same function, only one is money. At any rate the argument is largely irrelevant.

There is a good case for silver in industrial demand first port of call, then the speculative element and its link to gold in the markets - if gold does well then silver should follow. It doesn't mean it will. There are enough people that expect it and there are enough speculators to move the price even though their demand aspect is by far not the majority share. 

I do not think there is a legitimate investment case based on the confusion of silvers historic use as a substitute circulating fractional gold, and hoping for its monetary 'return'.