Eric Sprott: Silver is The Dark Horse

by The Daily Coin · February 26, 2016

(excerpts)

As we have reported on a number of occasions throughout 2015, and into 2016, that capital is drying up or has left the market completely. This has been causing stress and strain within the mining industry, but not like you might think.

Some of the worlds largest primary silver producers are reporting record mining years. In other words, these mining companies have been digging more silver out of the ground than ever before. Most of these mining operations are located in Mexico, the worlds largest silver producing country, while a lot of the rest of world’s silver producing countries have shown slight declines or flat production for 2015. The mining operations in Mexico have been “high grading” their mines, meaning they are digging out the most productive part of the mine possible. This does two things for the company. It cuts cost, which is great when you are dealing with a market that has suppressed the price of both silver and gold. It also means these mines are grabbing all the easy-to-mine product. If you dig out all of the easy product this year that leaves the harder, more expensive stuff next year.

This is exactly where we find ourselves today. These mines have stripped all the “low hanging fruit” within their operations. This can not and will not last. There is only so much “easy pickings” to be had. What this also does is allows the mining operations to continue operating instead of shutting down. With the current rates for gold and silver being at multi-year lows a lot of these companies have cut their profit margin by significant percentage points. One company recently announced a 44% drop in their year-over-year profits while at the same time reporting a new record in production. This does not make for a sustainable situation.

When I look at the $8 billion that’s gone into gold funds this month, you couldn’t begin to get that into silver in a year! There’s only 25 million ounces of silver on the COMEX and that’s worth only $400 million; you’d clean out the COMEX! I think only 20% of silver is available for investment, so that’s only 160 million ounces [annually].- Eric Sprott, The Daily Coin

While this is happening, we see, globally, a massive surge in retail investment demand for both silver and gold. This demand became overwhelming to the market in July 2015 when both the U.S. Mint and the Royal Canadian Mint were sold out of the two most popular silver coins in the world. While both mints moved to rationing sales for the remainder of 2015 both mints set new record sales volume!! That’s real demand! Oh, by the way, both of these mints are still rationing sales for the American Silver Eagle and Silver Maple Leaf coins and both are on pace to set another sales volume record in spite of rationed sales!! What would the volume be if these mints opened up the sales and allowed the market to determine the sales volume? We will never know.

So far, we’ve had about 100 tons a month going into the world’s ETF’s. If we annualize that, that’s 1,200 tons of gold purchases this year just for ETF’s. Last year they sold 138 tons, so you have a total delta there of 1,338 tons in what’s a 4,000 ton market! Which was in balance last year. So where do you come up with 1,300 tons of gold to satisfy that one change in demand? – Eric Sprott, The Daily Coin

And let’s not forget that the Shanghai Gold Exchange moved the equivalent of 100% of global gold mining production in 2015. Got physical?