Why is silver’s current supply/demand situation so important right now?
Eric Sprott, Doug Dobbs, Philip Klapwijk, Richard Daughty, John Embry
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Host: To many economists who study the silver market, it's not surprising that silver is starting to surge, as the fundamentals of supply and demand are at the heart of any rapidly appreciating commodity. Here's Walter Birch, Financial Reporter, to examine this further.
Walter Birch:: The demand side of silver does indeed appear to be strong. In fact, we recently experienced 16 straight years when the new above ground supply of silver was insufficient to meet yearly demand. While there have been small yearly surpluses since, the question is will new exploration be able to keep up with this growing industrial and investment demand? In other words, how quickly can new mines bring new silver into a hungry market?
Eric Sprott:: To go and explore and find an ore body, to bring it to pre-feasibility, to build the plant equipment, I mean, the accepted timeline is something like 10-years to get there.
Doug Dobbs:: You have to go through exploration. Exploration is extremely risky. You're looking for minerals in the ground that you largely cannot see, whether it's due to the fact their underground or under ground cover of some kind. Then much of the minerals today that are being produced are being produced are microscopic so you can't even see them with the naked eye. So chemistry plays a big role, but you need to go through an exploration process. Then you need to go through and analysis of how much is there. So first you've discovered it, then you need to determine how much is there, and is there sufficient quantity and grade that is mineral value to justify the costs of taking it out of the ground. You need to build a processing facility and a production facility to get it out of the ground and get it into a form that's marketable. If you hold on to a project through its entire lifecycle, the steps that it takes can take 10 to 20 years. It could take as short as 5 years, it depends on the project, it depends on the location, it depends on the politics of the jurisdiction as well.
Eric Sprott:: I don't see a lot of production coming on. There’s always a problem with mines. We have strikes all the time. We have demonstrations in countries, as you're aware of. People in the silver business in Peru, they had an ore body and weren't allowed to develop it. They probably had already put 8 years in and it just got stopped. People in Ecuador, their production got stopped. So there's lots of things that are stultifying production of silver and holding it in advance, the financial business, the political business, even the environmental issues that lots of companies have to face. So, I don't think, there's any clear-cut sign that silver production is about to increase dramatically here over the short-term.
Philip Klapwijk:: You've had a period of probably the best part of 20 years of a run down in silver stocks. Silver bouillon stocks now are at significantly lower levels than they were 10 to 20 years ago. That means that it's a situation where if... you start to see fresh demand for bouillon, fresh investment demand coming from institutional private investors, that that is putting pressure on that stock and leading to a significant increase in silver prices.
Richard Daughty:: The appeal of silver is just the potential of it going through the roof. There is an argument to be made that silver will sell at a premium to gold. Why, because gold is produced, but it is not consumed. All the gold that's ever been mined is basically still around somewhere. Silver has been consumed. It's lost; gone forever.
John Embry:: The demand is going to clearly out run the mine the supply. With the above ground inventories depleted, the arbiter in the whole case is going to be the price. I mean, the price can only go one way and it's going to be up. Depending on your thoughts in this it depends on how high it's going to go. The only question is how high it's going to go. The fact is it's going up.
Host:: The fact that silver is in very short supply only begins to set the stage for the compelling case for silver, not only in the United States, but around the world.