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“We’re Consuming More Than We Produce” Silver Warning | Randy Smallwood
Most Important Insight
The silver market has entered a structural, multi-year physical deficit driven by the inherent supply inelasticity of byproduct mining and accelerating industrial demand from the green energy transition.
Most Original Insight
Silver is transitioning from a monetary asset to a critical industrial commodity where price discovery will eventually be driven by physical shortages rather than paper market sentiment.
Key Points
- Over 70% of global silver production is a byproduct of base metal mining, meaning silver supply cannot quickly respond to price increases.
- Industrial demand, particularly from the solar photovoltaic sector, is consuming an increasing share of annual production, leaving less for investment purposes.
- Global silver inventories held in COMEX and LBMA vaults are being steadily depleted to meet the widening gap between mine supply and total demand.
- New mining projects face significant lead times and regulatory hurdles, ensuring that no major supply response is possible before 2029.
- The gold-to-silver ratio remains historically stretched, suggesting silver will significantly outperform gold as the deficit intensifies.
- Streaming and royalty models provide the most efficient exposure to silver price appreciation by avoiding the inflationary pressures on mining operating costs.
Investment Implications
| Asset / Sector / Instrument | Action | Source | Notes |
|---|---|---|---|
| Wheaton Precious Metals | BUY | explicit | The streaming model captures price upside while mitigating the impact of rising mining AISC. |
| Silver | BUY | implicit | Structural supply deficit and declining exchange inventories suggest significant upward price pressure. |
| Solar PV Manufacturers | HOLD | implicit | Rising silver prices represent a significant headwind for input costs in the renewable energy sector. |
| Gold | HOLD | implicit | While positive, gold is expected to underperform silver on a relative basis as the gold-to-silver ratio compresses. |
Hang on a sec…
- Smallwood claims silver supply is almost entirely inelastic; however, he overlooks the potential for a massive surge in silver recycling and 'above-ground' scrap recovery if prices reach certain thresholds.
- The assertion that the gold-to-silver ratio must revert to historical norms ignores the fact that silver's role as a monetary reserve asset has fundamentally changed compared to the 20th century.
- He promotes the streaming model as a lower-risk alternative, yet streamers remain highly vulnerable to geopolitical risks and 'resource nationalism' in the jurisdictions where their partner mines operate.