Silver is a precious metal that has been valued by humans for thousands of years. It has been used for jewelry, currency, and as an investment. But is silver becoming more rare? To answer this question, we need to examine both the supply and demand dynamics for silver.
On the supply side, the amount of silver extracted from mines each year provides a sense of how much new supply is entering the market. According to the Silver Institute’s World Silver Survey 2022, total mine production in 2021 reached 25,600 metric tons. This was a slight increase from 25,300 metric tons in 2020. However, it represents a significant decline from recent peaks in mine production in 2015 and 2016 when over 27,000 metric tons were mined globally.
Several factors have contributed to declining silver mine production in recent years. Some major silver producing countries like Mexico and Peru have seen decreases in output as reserves have been depleted in key mines. Environmental regulations have also constrained production at some locations. While new mines are being developed, they often take years to ramp up to full production. Overall, the trendline for global silver mine supply appears relatively flat, with limited prospects for major growth.
In contrast to sluggish mine supply, demand for silver has been steadily increasing. According to the Silver Institute, total physical demand reached 1.05 billion ounces in 2021, the highest level since 2015. Much of this demand comes from industrial applications including electronics, solar panels, and ethylene oxide production. With the growth of these sectors, especially solar power, industrial demand is projected to rise further.
Investment demand is another component supporting increased silver consumption. Investors buy silver coins, bars, and exchange traded funds (ETFs) to diversify their portfolios and hedge against risk. Investment demand reached 278 million ounces in 2021 after hitting a six-year high in 2020. With precious metals seen as a safe haven asset, investment in silver could remain strong.
Is silver scarcity being reflected in prices?
To determine if silver is truly becoming more scarce, we can look at price trends over time. If supplies are decreasing relative to demand, basic economics would indicate that prices should rise.
Over the past 10 years, silver prices have seen some volatility but remain well below previous peaks. The chart below shows the annual average silver price per troy ounce from 2010 to 2021.
| Year | Average Silver Price (USD per Troy Ounce) |
|---|---|
| 2010 | $20.19 |
| 2011 | $35.12 |
| 2012 | $31.15 |
| 2013 | $23.79 |
| 2014 | $19.08 |
| 2015 | $15.68 |
| 2016 | $17.14 |
| 2017 | $17.05 |
| 2018 | $15.71 |
| 2019 | $16.21 |
| 2020 | $20.55 |
| 2021 | $25.18 |
In 2011, silver reached a peak of over $35 per ounce. But prices then fell sharply over the next several years. The average annual price remained between $15 to $19 per ounce from 2014 to 2019. More recently, prices have bounced back above $20, reaching an average of $25.18 last year. However, this is still well below the previous peak.
If silver were becoming significantly scarcer, the expectation would be for prices to rise steadily over time and trend toward new highs. The price fluctuation instead indicates that the silver market has remained relatively balanced in recent years. Increased demand has been largely offset by adequate production. Recycling of silver has also boosted supply as consumers sell old jewelry and other items containing silver.
Are known reserves declining?
Another factor to examine is reserves – the amount of identified silver deposits that could be economically extracted at current prices. If known reserves are shrinking over time, it would indicate that future silver production could hit constraints as resources are depleted.
According to the USGS, global silver reserves stood at 530,000 metric tons as of 2020. This represents a slight decline from 570,000 metric tons in 1995. However, 25 years is a relatively short timeframe in the mining industry. Proven reserves have not dropped dramatically.
Moreover, existing reserves are typically only calculated based on current mining economics. As prices rise, less accessible or lower grade deposits can become economically viable to develop. New exploration and improving technology can also unlock additional reserves over time.
The country with the largest silver reserves is Peru, accounting for over 16% of the global total. The next leading countries are Poland, Australia, Mexico, and China. Proven reserves are over 100,000 tons in Peru, Poland, and Australia. With reserves distributed globally, no one country is close to fully depleting its silver resources.
Based on known reserves, the Silver Institute estimates that mine production could be sustained for over 15 years at current rates before constraints are reached. Some analysts project that high prices would appear well before then, encouraging greater production and exploration. Overall, reserves data does not point to an imminent peak in silver production.
Outlook for silver scarcity
Analyzing supply and demand dynamics along with reserves, price signals, and other factors indicates that silver scarcity is not a major concern in the near to medium term. Key points supporting this outlook include:
- Global mine production has stabilized and remains adequate to meet demand.
- Industrial and investment demand continue to grow, but have been offset by supply.
- Silver prices remain well below historical peaks.
- Proven global reserves are substantial and dispersed across many countries.
However, there are risks on the horizon that could alter the long-term scarcity equation for silver. If industrial uses like solar power and 5G infrastructure really accelerate, demand could potentially outstrip new supply. Constraints on fossil fuels used in mining could also slow silver production.
Additionally, if inflation prompts more safe haven investment or if economic growth shifts back toward physical currency, demand may rise rapidly. Finally, if new environmental regulations limit mining more severely, supply could tighten.
Increased silver scarcity that leads to higher prices seems plausible in the coming decades. But in the shorter term, silver does not appear poised for the type of extreme spikes in value that some analysts have speculated. While silver should retain its value as an investment hedge and industrial commodity, predictions of silver returning to $50, $100 or more per ounce any time soon are not grounded in the supply and demand realities.
Silver’s scarcity trajectory will be one to continue monitoring. But the long history of this metal suggests it will remain an important resource rather than vanishing entirely. With prudent management of reserves and recycling, silver is likely to maintain its unique roles in industry, investment, and culture for many years to come.
Conclusion
In examining the key factors that determine silver’s scarcity, the evidence does not point to silver becoming dramatically more rare in the immediate future. Global mine production has stabilized, reserves remain substantial, and increased demand is being met without prices rising to new highs. However, there are risks further out that could constrain supply or accelerate demand, especially if new industrial uses take off. Careful analysis of silver’s supply chain dynamics will be needed to anticipate when true scarcity might emerge. With wise management of resources and recycling, silver should continue providing value and functionality for decades to come.