The 12 Year Silver Deficit

In the final quarter of 2015 the Silver Institute released their 2015 Interim Report on the global status of this precious metal, and there was a big surprise in store as they reported that silver has suffered through a 12 year deficit. This essentially means that the world is using more silver than it is producing, with the figures produced after subtracting the total global demand of physical silver from the total global supply.

This is not new, as the deficit was acknowledged when it began back in 2003, but many thought that it had ended in 2014. The previous year there had been a deficit of 122.3 million ounces, but in 2014 there was a surplus of just 2.6 million ounces recorded. However, these figures were corrected upon revision, and when that happened the 2014 supply was overturned, becoming a deficit for the 11th year running.

The Extent

So how bad is this deficit? Well, we’re not talking about fractional amounts here, at least not for the most part. In 2004 and 2005 the deficit was slight when compared to today, but combined these two years were still more than 30 million ounces in the red. This drastically changed in 2006, when silver deficits dropped to over 130 million ounces, and this number rose both in 2007 and again in 2008, at which point it had reached an extraordinary high of 267.1 million ounces.

silver deficit

Fortunately, it would not increase further than this, and the accumulated deficits recorded in 2009, 2010, 2011 and 2012 would actually equal the one recorded in 2008. In 2015 the figure was actually lower than it was in 2004, but at 21.3 million ounces into the red, and a revision due next year that should push this up further, it is still an amount that should signal alarm bells for silver consumers.

If we add all of these deficit amounts up then we arrive at a combined deficit of more than 1 billion ounces, which means that in a little over a decade, the world consumed more than 31,000 metric tons of this precious metal than it produced.

What This Means

It should go without saying that when the demand is greater than the supply, the price will go up. However, this has clearly not happened and silver has been very cheap for the last few years, even when these deficits have been factored into the market. That’s because in the grand scheme of things, even 1 billion ounces is not a great deal, and this needs to continue (which is a very likely possibility) and turn into a long-term issue before it begins to drive up the price. To quote from the 2015 Interim Report, “Multiple years of annual deficits can begin to apply upward pressure to prices in subsequent periods” which is a convoluted way of saying that this will soon push-up the value of silver.

Of course, as mines have not been supplying the world with the silver it needs, just where has this been coming from? The suggestion is that the deficit has been taken from an unreported silver hoard, which has steadily fed silver into the markets over the years. However, this is unlikely to continue for much longer, because no supply is infinite. The market remains stable for now, but if the deficit continues then the stockpile that has been feeding the market will eventually dry up, and at that point your stack of silver will begin to look like a very wise investment.

There is no way of knowing just when this will happen, but what we can be sure about is that this is not a case of “if” — certainly not if things continue as they are.

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