Is a Major Physical Silver Supply Squeeze Developing?
There is a strong prospect that silver’s price could rise much further in the coming months.
At the COMEX market close Wednesday, June 5, the spot price of silver was up almost 25 percent from where it settled at the end of last year. In recent weeks, the prices have been even higher than that.
Normally, when there has been such a relatively large move in a commodity’s price, you will tend to see a retrenchment, often giving up half of the recent gains. Then, prices can stagnate at those levels. That has not happened yet this time around.
In fact, there is a strong prospect that silver’s price could rise much further in the coming months.
According to the Silver Institute’s research, there was a combined shortfall from 2021 to 2023 of more than 663 million ounces of silver supply to meet demand–before factoring in inventory movements into and out of silver exchange-traded funds. This shortfall amounts to almost 80 percent of annual global silver mining output. Another shortfall of 215 million ounces is forecasted for 2024. Just on this basis, there is pressure for higher silver prices.
In recent months, Reliance Industries in India has had so much difficulty acquiring physical silver to use in manufacturing solar panels and other photovoltaic products that the company ended up purchasing COMEX silver futures contracts. Upon maturity of those contracts, it asked for physical delivery of at least 25 million ounces of silver.
The private sector's demand for physical gold in China has been so strong this year that demand for investment purposes in that nation rose 26.9 percent in the first quarter of 2024 compared to the first quarter of 2023. Gold imports into China have not been enough to cover demand, so Chinese buyers are purchasing gold contracts on the Shanghai Futures Exchange. Combined, the volume of gold trading in the Shanghai Gold Exchange and the Shanghai Futures Exchange now exceeds the volume of the COMEX.
To try to mitigate the shortage of physical gold in that country, the government ordered the media there several weeks ago to urge the public to purchase physical silver instead of gold. Over the past two weeks, the price of physical silver in China has risen as high as $4 above the global spot price. Between strong physical demand in India and China, there appears to be a good prospect of much higher silver prices soon.
Answer to the Previous Trivia Question
Last week, I asked: Who was the first U.S. president to appear on a U.S. coin during his lifetime?
The answer is Calvin Coolidge, who was serving as the president when the 1926 U.S. Sesquicentennial of American Independence commemorative half dollar was issued. The coin’s obverse features George Washington’s bust in front of and largely covering Coolidge’s bust.
This Week’s Trivia Question
After factoring in the effects of inflation on the money supply, on what date did the price of gold reach its all-time peak thus far? Come back next week for the answer.
Patrick A. Heller was honored as a 2019 FUN Numismatic Ambassador. He is also the recipient of the American Numismatic Association 2018 Glenn Smedley Memorial Service Award, 2017 Exemplary Service Award, 2012 Harry Forman National Dealer of the Year Award, and 2008 Presidential Award. Over the years, he has also been honored by the Numismatic Literary Guild (including twice in 2020), the Professional Numismatists Guild, the Industry Council for Tangible Assets, and the Michigan State Numismatic Society. He is the communications officer of Liberty Coin Service in Lansing, Mich., and writes “Liberty’s Outlook,” a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at www.libertycoinservice.com. Some of his radio commentaries titled “Things You ‘Know’ That Just Aren’t So,” and “Important News You Need To Know” can be heard at 8:45 a.m. Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio archives posted at www.1320wils.com).
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