As I write this, silver prices have fallen to $15.00 USD an ounce, down from $48.70 USD an ounce on April 28, 2011. Once you finish reading this, you’ll be scratching your head as to why this is happening, as the supply/demand equation for silver says prices should be much, much higher.
Silver Demand Rising
In June of this year, the U.S. Mint sold 4.84 million ounces of silver in American Eagle coins, the Mint’s biggest sales month for American Eagle coins since January. Month-over-month, in June, sales of silver at the mint increased by 139%; in May, the U.S. Mint sold just 2.02 million ounces of silver in coins. (Source: U.S. Mint, last accessed July 15, 2015.)
On July 7, the U.S. Mint announced that it has sold out of 2015 silver bullion coins! The reason given for running out of the coins? The Mint said it was due to significant demand. (Source: Reuters, July 7, 2015.)
The U.S. Mint isn’t the only place experiencing soaring silver demand. The Royal Canadian Mint is reporting higher silver sales as well. In the first quarter of 2015, it sold 8.9 million ounces in silver Maple Leafs coins—8.5% higher than the first quarter of 2014. (Source: Royal Canadian Mint, last accessed July 15, 2015.)
Demand for silver in India is skyrocketing, too. The country known for its appetite for gold is eagerly buying the gray precious metal, too. In June, India imported $342.37 million worth of silver. In the same month a year ago, its silver imports were just $212.81 million. This represents an increase of over 60%. (Source: Indian Ministry of Commerce & Industry, last accessed July 15, 2015.)
Supply Side Continues to Shrink
On the other side of the proverbial coin, silver mine output is contracting.
In the first four months of 2015, Canadian silver mines produced 131,087 kilograms (kg) of silver. In the same period a year ago, they produced 162,194 kg of silver. Simple math shows that silver mine output from Canada declined more than 19%. (Source: Natural Resources Canada, last accessed July 15, 2015.) Canada is a major producer of silver.
In the U.S., silver mine production also faces some headwind. In April of this year, U.S. mine output amounted to 100,000 kg, down 5.6% from March 2015. (Source: U.S. Geological Survey, last accessed July 15, 2015.)
Silver to Double in Price from Here?
Dear reader; when asset prices are falling, or are at rock bottom, you have to look at the fundamentals, as the charts won’t make much sense. The price chart for silver shows a declining price trend. The fundamentals, on the other hand, are speaking louder than ever. They suggest there’s a huge “for sale” sign on the gray metal.
I have been following silver for some time now and my conclusion is that investors (in the long run) can make more money with the gray metal than with gold. I say this for one simple reason: if silver goes back to $48.70 an ounce—a level it has already been at—it will mean a return of 225%. If gold goes to its previous record of $1,900 an ounce, it will generate a return of 65%. On a percentage basis, silver will provide a bigger bang for one’s buck than gold.