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« Comex Physical Silver Drops To Fresh All Time Low Of 28.8 Million Ounces, 3% Drop Overnight, 30% Drop In Six Weeks | Main | The End of America »

Competition Time

Silver Coin 31 May 2010.JPG

Can You Pass the 2011 Silver Quiz?

Jeff Clark, BIG GOLD

CPM Group recently released their 2011 Silver Yearbook, one of the industry’s most comprehensive sources of information on the silver market. Though mostly a reference book, I uncovered some interesting facts that paint a decidedly bullish picture for the metal going forward.

If you’re a silver investor, or are concerned about the recent selloff, you may find the following data very compelling. It provides an inside track on the market and will certainly make us all more knowledgeable investors.

For fun, I put what I read into the form of a quiz. See how many you can get correct…

1)  The #1 driver for silver’s price increase in 2010 was:
a)  Investment demand
b) Fabrication demand
c)  Lower supply

While both fabrication demand and supply rose last year, investors bought 142 million ounces of silver – the third highest level on record, and the highest since 1980. This pushed the price into record territory.

It’s noteworthy that investment demand was higher last year than during the recession year of 2009. This suggests that investors buy silver more out of dollar devaluation and inflation fears than simply due to an economic contraction.

2)  Silver mine production:
a)  Exceeds demand
b)  Matches demand
c) Falls short of demand

Silver produced from worldwide mining totaled 667 million ounces last year – but total demand hit 986 million ounces. Despite the fact that mine production has increased 33% since 1999, it falls far short of supplying the market’s needs.

While scrap coming to market makes up the difference, this gap is one of the more critical issues going forward. The delicate balance between supply and demand will become increasingly precarious as overall demand continues to grow.

3)   Household demand for silver (cutlery, flatware, and candlesticks) hasn’t risen in ten years. Jewelry fabrication is up but a blip. Silver use in photography continues to fall. So, true or false?:
Total demand is falling.

False. Industrial use has more than made up the difference from declines in other uses, and is pushing demand to new levels. Since 1999, consumption in electronics has increased 120%. Silver usage in solar panels began in 2000 and is up 640% since then. Silver was first used in biocides (antibacterial agents) in 2002 and, while a small niche, it has already grown sixfold. In fact, new uses for silver are being found almost every day, particularly in the biocide arena, making it increasingly difficult to catalog all its growing applications.
The Silver Institute forecasts that total industrial use of the metal will rise 36% over the next five years, to 666 million troy ounces annually. That’s a lot of silver, meaning this portion of demand – which is roughly 60% of all fabrication – isn’t letting up any time soon.

4) Silver represented what percent of global financial assets at the end of 2010?

a)  1.7%
b)  0.7%
c)  0.07%
d)  0.007%

D. In spite of last year’s record-high prices, silver is, by any account, a miniscule portion of the world’s wealth.

The ratio’s high occurred in 1980, reaching 0.34% of financial assets. Silver as a percentage of global assets would have to grow over 48 times to match the record. It is true that many more paper assets exist today than 30 years ago, but the renaissance in silver will continue to increase its portion of worldwide assets.

5)  The largest manufacturer of silver coins is the U.S. Mint, which sold 34.7 million ounces last year, about 46% of the world total. What country is the second largest?

a) Austria
b) Canada
c) U.K.
d) South Africa

The Austrian Mint contributed 15% of total silver coin sales last year (11.4 million ounces), an increase of 26% over 2009.
Still, the American Silver Eagle rules the global roost. Given how recognizable it is around the world, it’s what to buy if you don’t own enough metal.

6)   Of the following groups of countries, which is increasing silver production and which is in decline?

a) Mexico, Australia, China, Argentina
b)  Peru, U.S., Canada

Countries in group A are increasing production, while to the surprise of many, each one in group B is in decline.

This has direct ramifications for your silver stock investments. Total newly refined supply is expected to surpass one billion ounces for the first time in history this year, so make sure you have some exposure to countries where production is growing.

7)  The average cash cost to produce an ounce of silver from primary silver mines is:

a) $7.16
b) $6.16
c) $5.16
d) $4.16

Of the 30 primary silver mines in the world, average cash cost rang in at $5.16 per ounce (net of byproduct credits). This is almost double 2002 levels. The silver price has risen 650% in the same time frame, however, so margins have risen in spite of higher costs.
8) The only governments that hold silver in inventory are the U.S., Mexico, and India. How many combined ounces do they hold?

a) 55 million
b) 155 million
c) 255 million
d) 355 million

Only 55 million ounces are estimated to be stored in these three countries. This equals only 5.6% of annual global demand. Governments held approximately 355 million ounces in 1970, but this has diminished largely due to the U.S. decision to stop using silver in its currency in the 1960s and other governments following suit.

No other countries are believed to hold any silver in inventory. Mine production and scrap supply had better keep up, because there is no backup source.

9) China accounts for how much of worldwide mine production?

a) 9%
b) 11%
c) 14%
d) 16%

Chinese mine supply totaled 102.7 million ounces last year, 16% of global production. China is the third largest silver producer, behind Mexico and Peru.

Mine production in China has more than doubled just since 2000, largely due to Beijing’s decision to deregulate the state-controlled market the year before. This trend is certain to continue, due to rising silver prices and the fact that many parts of the country are underexplored. If you don’t own a Chinese silver producer, you’re missing out on some of the most explosive growth around the globe.

10) What is the weakest month of the year for the silver price?

a) January
b) June
c) July
d) October

Summer is usually the most sluggish time of the year for silver, and July is historically the weakest. Got your dealer’s number handy?
It’s clear that the forces underpinning the silver bull market aren’t going away any time soon. Demand is high, but it’s not an anomaly when viewed through an historical lens. Silver has been used as money for over 3,000 years, and the word for “money” in many languages is “silver.”

Meanwhile, our current monetary issues are far from over, won’t be easily resolved, and will take years to play out. Precious metals are proven forms of protection for this environment. Silver, along with gold, is your best defense against unsustainable fiscal imbalances and massive currency debasement, and will be a profit center for years to come.

Learn everything you need to know about silver – when to buy, what to buy, and how the silver bullion squeeze could affect the market. Read it now… in the free 2011 Silver Investing Guide.

Regarding The stats and the charts have been updated and are as follows:.

Our model portfolio is up 338.11% since inception

An annualized return of 128.07%

Average return per trade of 40.41%

81 closed trades, 78 closed at a profit

Average trade open for 46.27days

sk chart 22 May 2011.JPG

The above progress chart shows our performance when profits are re-invested, however, to see exactly how it is going, please click this link.

So, the question is: Are you going to make the decision to join us today.

Stay on your toes and have a good one.

Got a comment then please add it to this article, all opinions are welcome and very much appreciated by both our readership and the team here.

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Reader Comments (4)

"7) The average cash cost to produce an ounce of silver from primary silver mines is:

a) $7.16
b) $6.16
c) $5.16
d) $4.16"

this is a good illustration of the bubble in precious metals. If Walmart only makes 30% of profits on what they sell, why should precious metal producers be any different. It is only matter of time when silver prices drop back to below 10.00 buck range.

June 5, 2011 | Unregistered CommenterDi

That's manufacturer's cost. Usually there is a distributor and then a retailer in that equation. The Walmart model is not apples to apples. At $5.16 per mfg. ounce, the retail price should probably be around $14 and resell by private parties should be about $10.

But that's only if you think of it as a consumable good.

The rest of the value comes from it's value as a liquid investment.

June 5, 2011 | Unregistered CommenterSG


I thought Walmart made around 3% to 6%, but stand to be corrected, where did you get this 30% figure?

June 5, 2011 | Unregistered CommenterSilver Prices

Di doesn't have a clue, as usual. 30% margins in low end retail. Are you kidding? They wish.

Look, the cost of production is immaterial. Unless the industry is able to produce a lot more to meet the increasing demand and alleviate the severe shortage, guess what, you can charge high prices and attain high margins.

It can't.

This is a silly line of "reasoning" that assumes there's an objectively determinable "fair price" for an ounce of silver or anything else. That's nonsense...a vestige of Aristotelian and Thomian thought.

Lastly, most silver doesn't come from primary silver mines. It comes as a by-product of base metals mining. That supply will not be increased materially...if at all...just because the price of silver has risen. If you don't know that and assume that higher prices and rich margins will spur a ton of additional production, you don't know anything about silver mining and should probably refrain from commenting on the market.

You don't snap your fingers and find more silver, prove up the deposit, obtain the permits and the financing, and build a mine. It's all hellishly difficult and time consuming. Please don't compare precious silver to the Chinese-made geegaws at Walmart. Those are in plentiful supply and more can be produced and delivered virtually overnight. Just try to quickly produce a lot more silver. Can't be done.

Silver is in wickedly short supply and will be in in even tighter supply in the future. Price is very likely to be in triple digits and pretty soon. The only thing that slows it down is a possible replay of 2008...only worse.

June 6, 2011 | Unregistered Commenterfallingman

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