Silver – It’s a Production Bottleneck, Not A Supply Shortage

April 17th, 2013 by

The speed at which gold and silver was snapped up worldwide may have some people anxious, especially if they read some blog reports of a silver shortage. What we are seeing right now is the aftermath of an unexpected global surge in physical silver purchases, and the production bottleneck as both government and private mints rush to increase production to replenish stocks of coins, rounds and bars.

The U.S. Mint was already running three shifts, 24/7, to meet American Silver Eagle and Gold Eagle demand before the panic selling of the last week brought a rare opportunity for physical buyers to stock up at bargain basement prices. The Royal Canadian Mint and most private mints are also filling orders as fast as possible.  Treasurer of the Perth Mint, Nigel Moffatt, remarked that demand this week at the mint (which sells to the public) is “way in excess of double what we did last week. There’s been people running through the gate” at the entrance to Mint grounds in order to buy gold and silver. This is where the bottleneck is, not in supplies.

Let’s look as silver, since that is where the higher demand and fears of a shortage are. According to the United States Geological Survey report on silver in January 2013, global silver mining production in 2012 was over 24,000 metric tons (over 771 million troy ounces.) Most mines have held large stockpiles, due to supply exceeding demand. If you comb through the reports of various mining companies you will find reserves in current mines that have been untapped. Many mining companies have scaled back production due to low prices and weak demand.

We will see these resources come online as demand brings prices back up. The United States alone has 25,000 tonnes of reserves, and our southern neighbor, Mexico produces over 4,250 tonnes of silver a year. In fact, Central and South America still holds the world’s largest silver reserves, and there are a large number of mines in the U.S. that could be reopened, that were simply closed down in the 1990s due to low prices.

Of course, the key to increased production is increased prices brought about by increased demand. The extraordinary demand we are seeing this week will lead to higher prices, but keep in mind that you can place your order today at Gainesville Coins to lock in low prices on popular items that will be back in stock as soon as the mints catch up.

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