CME Group - Gold & Silver Supply Side Impact on Prices



Information on silver demand or supply is always useful. Recently, the CME group produced this article suggesting that while demand drivers are of course important, it's also important to look at how the supply side in gold and silver may impact prices. 

Below I have listed the key bullet points from the article. The article notes that since 2016 silver supply has been in a decline. We know that in 2020 mining supply was impacted from shut downs related to the COVID pandemic. So many precious metals observers will be interested to see what mine supply does in 2021. Will it continue to decline or bounce back up some?


  • Mining output is a significant driver of changes in gold and silver prices
  • Gold mining output appears to have a major influence on both gold and silver prices
  • Silver mining output appears to have a somewhat weaker influence on gold and silver prices
  • When precious metals prices rise, jewelry buyers get priced out of gold but can still afford silver
  • Gold and silver are economically connected via the jewelry and investment markets
  • Higher economic value makes gold the dominant member of the gold-silver system
  • Secondary supply/production responds to price rather than drives it



Earlier we posted this article looking at how many estimated silver reserves there are in the world, per the latest update from the USGS (US Geological Service). There is some ongoing debate about where things stand on global silver supply and whether or not the decline in mine supply in recent years is because of falling ore grades or other factors. What we know for sure is that both total silver mine supply and ore grades have been declining in recent years. Once we have some new data in from 2021, we will get a chance to see if these trends are continuing or not. 

Regardless of why the declines are taking place, the bottom line impact of a continued downward trend in mine supply in an environment where physical silver demand seems poised to increase should be upward pressure on silver prices. That is why we watch the these trends.

The trending decline in supply does not mean the world is about to run out of silver soon. USGS latest estimate is a 17 year supply at current demand rates. New reserves will be found during those 17 years, but no one knows if enough new reserves will be found to replace the existing reserves now being produced (or how much it will cost to produce them). There are of course above ground supplies of silver held by investors all over the world, but no one really knows at what price those ounces are available or for certain how many ounces are being held. 

Anyone who tells you they do know the answers to these kinds of questions is guessing based on historical data. That's fine, but the past does not always translate to the future. Anyone touting their forecast based on past results may or may not know any more about the future than anyone else because times change. Many times people completely miss important "sea change" moments in time.

Six months ago, no one anticipated a grass roots movement to spur demand to buy physical silver would arise out of nowhere obviously boosting investment demand by millions of ounces very quickly. Two years ago, no one was predicting global mine supply would take a big hit from a global pandemic. So please take all predictions with a grain of salt and check out the data and assumptions being used to make the predictions.

The goal here is to provide the most accurate data available and follow the market over time to see what actually happens. In the end, what actually happens is what matters.  No one knows for sure what will actually happen, but the recent trends do provide useful information and certainly should be followed over time to see if they are continuing.

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Added note: Here is a recent quote from an article on Kitco by Hecla Mining CEO Philip Baker on the supply trend we mentioned above.

"Not only is silver demand expected to continue to grow, but Baker said that supply is also reaching its limit as there has not been any significant new mine development in years. He added that if this trend continues, supply will struggle to keep up with demand."


Here is a recent interview on the silver supply situation with Hecla CEO Phil Baker




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