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Massive Silver Shortage

Image shows stacks of silver bars

July 3, 2020

The overall market cap of the silver sector is incredibly small when compared to other segments of the economy, and is thus susceptible to wild swings, manipulation and disruptions. This has always been the case; however, the remainder of 2020 may starkly highlight these problems.

Disruptions in silver supply have been severe over the last few months as the COVID-19 pandemic raged across the world, with some of the largest producers of silver suffering huge setbacks in production.

(Chart source, SRSrocco Report)

Mexico, the largest silver producer in the world observed silver mine production decline by a staggering 40% in April vs the previous year’s production, resulting in a decline of 199 metric tons over the previous month. This is a significant loss in its own right, but even worse when you consider that this problem occurred all over the globe.

(Chart source, SRSrocco Report)

Peru, the second largest producer of silver suffered even heavier losses than Mexico, with its Ministry of Mines and Energy reporting a stunning 74% loss in silver produced throughout the month of April vs the previous year.

As we also seen in Mexico's silver production, this was a heavy drop off from the previous month, with Peru dropping by 130 tons month over month.

(Chart source, statista.com)

Meanwhile, as seen from the chart above, the next largest producer of silver between the years 2010 to 2019 is China, followed by Poland, Chile and then Russia.

All of these countries, but most notably China, have also suffered heavy damages from the COVID-19 pandemic, with China being the most severe of these, resulting in large scale shut downs across the board within the country.

It is hard to get concrete, solid data from China; however, it is without a doubt that similar or worse declines in production occurred through the last few months as COVID-19 ravaged their economy.

What all of this means is that we have a huge, massive decline across the world of silver production, and of which is likely going to continue to suffer throughout the remainder of this year and likely into the early part of 2021.

This comes at a time when we are seeing strong demand for physical silver from silver ETF's, which have had a record breaking increase of 65 million ounces already throughout 2020, with many months still remaining in the year.

Additionally, demand for physical bullion among investors seeking the metal as a safe haven asset is estimated to increase by 16 percent year over year, resulting in a five-year high in demand.

(Chart source, worldometers.info)

Unfortunately however, COVID-19, even though people are now beginning to realize that the mortality rate is much lower than at first estimated, is still a constant, persistent threat to the economy as a whole, including the mining sector.

This is resulting in large sectors of the economy operating at reduced capacity, as both manufacturers produce less and people purchase fewer items, meaning less demand for commodities across the board, including silver, which is used in the production of a vast array of products.

Still, it is only a matter of time before this significant reduction in supply begins to be felt by those who require silver to produce their products, especially given the fact that much of the silver produced in the world is simply a byproduct of base metal mining.

It would not surprise me at all to see silver spike hard in the latter part of this year, as the safe haven side of demand begins to steadily increase, given the uncertainty surrounding the upcoming 2020 Presidential elections and the almost guaranteed chaos that is going to result, regardless of who ultimately comes out as the winner, as I believe neither side is going to simply "accept" the results.

And that is only just one of the many problems, it is predicted by many medical experts that a second wave of COVID-19 is expected to roar back come this fall, resulting in more money printing, more shutdowns and increased uncertainty in what the future holds for us.

This will result in an even greater reduction in supply, while there is a sharp increase in both physical gold and silver bullion, potentially resulting in significant gains for those who had the foresight to accumulate while prices were "on sale".

Regardless of what is to unfold, uncertainty is without a doubt coming in spades.

Stay safe and keep stacking.

Don’t miss a golden opportunity.

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About the Author

Nathan McDonald is a libertarian, entrepreneur and precious metals enthusiast. He has always taken a keen interest in free markets and economics since an early age, which naturally led him to become a true believer in precious metals and all that they stand for.

Nathan served eight years in the Royal Canadian Navy as an electronics technician, seeing the true state of the world, before starting his first successful business. He has since gone on to create a number of businesses, all of which are still in operation and growing.

In addition to this, Nathan runs a network of successful precious metals blogs, and a growing newsletter that has attracted readers from all around the world. He is a regular and highlighted writer for the highly respected Sprott Money Blog, which covers world events, geopolitics and of course precious metals.

*The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.


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