We’ve been looking at the fundamentals of silver and the most recent market prices in an effort to try and make sense of the low prices we are seeing for silver. We’ve posted a couple of recent article about putting silver in your self directed IRA and if the time is right. What we want to do in this article is look at the basic, fundamental macro economic issue that affect silver supplies and ultimately silver prices.
All Paper Currencies Fail And Gold And Silver Still Hang Around
Mankind has returned to the safety and stability of gold and silver time and time again. Unlike paper based, fiat currencies, gold and silver represent a store of value and something that people have placed value in for thousands of years. All fiat currencies known to man have failed 100% of the time. So, let’s put this in perspective: 100% of the time, gold and silver have represented a store of wealth and value and they have never failed. 100% of the time, all paper based currencies issued by governments have failed. So, which one would you bet on over the long haul?
Silver Supply Metrics
According to the USGS, 17 billion ounces of known silver supply remain in the ground globally–the troy ounces of silver equivalent of the 530,000 metric tons. Today, silver is primarily obtained as a byproduct from lead and zinc mines, copper mines, and gold mines, in descending order of production volume. The poly-metallic deposits account for more than two-thirds of U.S. and worldwide silver resources.
Accordingly, more mining for base metals also drives silver supply. According to the book The Visual Miscellaneum, David McCandless estimated remaining world supplies of lead at 14 years, and zinc at only 10 years.
Lead and zinc poly-metallic mines make the biggest annual contribution to silver supply, and that supply is just 15 years or so from complete exhaustion!
McCandless puts remaining world supply for silver and gold resources at only 14 years.
Because of this current and projected scarcity of supply, some metals exporting countries are adopting policies of retaining their silver mining production rather than exporting it. A good case in point is, according to CPM group’s 2012 Gold Yearbook, in January, Kazakhstan ended 1.2 million ounces of annual gold exports, choosing to buy its own domestic mine output in an effort to build up gold holdings.
The Marginal Utility Factor Of Silver and Gold
Gold and silver are exchangeable globally as money. The third, fourth, and fifth unit is just as valuable to the holder as the first unit. Therefore, the marginal utility of silver and gold decline at a slower rate than any other commodity. This characteristic of silver and gold exists because they are considered money, and therefore, demand for them will always be far greater than any supply.
The Perfect Storm: Marginal Utility, Limited Supply, Fiat Currencies
So, we now see that silver is in limited supply (14 years), that all currencies fail, and that silver is considered currency. It does not take a big leap to see that during the near term of our lifetimes we are looking at a situation where it becomes obvious to the masses that we are in short supply of silver relative to the demand as a direct result of government policies (a/k/a printing and deficit spending). With this in mind it would seem that prudent investors would allocate some portion of their self directed IRA portfolio to silver.
The information provided is for educational purposes only and are not a solicitation or offering of an investment, investment advice, or tax advice. You should consult with your tax, legal or financial advisor to determine the suitability of any investments made with a self directed IRA account.