Inquiring about how much is in the world seems foundational integral to assigning a theoretical value to it. We are going to answer that question, below. We are also going to tackle another - maybe more important - question investors come across. That is how much silver can be feasibly mined given the current pace of technology. Why would you want to know this?
Our research suggests there is some 800 thousand tonnes of silver in the world. So what? Let's say that you can forecast trends in global silver demand based on reasonable assumptions. So let's say you expect 1 billion ounces of demand next year, now what?
Figure out the amount of new supply based on how much silver is in the world to be mined at a certain price. Then go ahead and add recycling, and factor in the elasticity (how sensitive demand is to price changes) of silver demand. Theoretically, you should be able to predict what silver should be worth. Discount that back to today at market rates and you have a working investing model.
So before we try to answer the question, it makes sense qualify it. Is asking how much silver is in the world kind of like asking how much Albacore tuna is in the ocean? The furthest we've gone into the earth is roughly 12km, in the Russian Kola Superdeep Borehole.
To figure out how much Albacore there is in the world you would need to look over marine research estimates. Specifically, the number of Albacore alive in the ocean, how many are fished each year across the globe, and how many are consumed each year by hungry humans. So the analogy is in many ways fitting.
The point is: it’s a complicated endeavour, and one that involves a number of estimations.
If all that is true, on what basis could we make an estimate? Harald Sverdrup attempted to by combining "mining, trade markets, price mechanisms, population dynamics, use ins acuity and waste and recycling into an integrated system." This led to a scary conclusion; peak silver production was in 2027-2038 and silver mines are expected to run out by 2240. This suggests that recycling is going to become an ever-more important element in silver production.
So we know it can be challenging understanding how much silver is in the world for many reasons. However, a major source of silver supply is often ignored: recycled silver. Refiners like Republic Metals Corp have an annual capacity of over 7,000 tons of gold and silver. Remember those annoying cash for gold advertisements? You know, the ones with the guy in the monkey suit dancing around for your metal? Well, some of those guys buy enough metal to rival a small mine in output. Keep that in mind when you read about estimates of total silver in the market. Unfortunately, the turnaround of existing 'scrap' into fine silver can be hard to predict and often spurs more interest than accuracy.
The ensuing issue with getting accurate with how much silver is in the world follows. How do you estimate how much pure silver is according to silver standards? Since WW2, sterling and lower grades of silver have become increasingly common in manufacturing. Why? They are cheaper. With that in mind, large institutional and private holdings of fine silver have made it easier to estimate.
A massive challenge with silver is separating the truly pure stuff from the alloys. Why? Because, much like our Albacore tuna example, silver deposits in the earth are a challenging thing to track. Silver actually binds to other metals and forms an alloy. It must be mined with these other metals and then isolated from them to even test its rarity.
This is not as often the same with gold, which can be found in relatively isolated clumps underground. With that in mind, companies like gold's higher price also makes it much more sensible to mine impure. On the extreme, Detour Gold in Ontario shows us how a historic open pit/underground mine with low-purity can be exploited with a sufficiently high price.
This would require a huge geological survey, the likes of which we have yet to see. Now you can see why estimates of how much silver actually is in the world should be taken with a grain of salt.
Finally, we must figure out how much silver is in the private reserve of investors and government central banks. Luckily for us, the Silver Institute does about as good a job as any in tracking the status of silver. Let’s break down the areas of where silver might be, to get a clearer picture of how much silver there actually is.
885.8 million ounces of silver were mined in 2016. That’s a decrease of about 5 million ounces from the 890.8 million ounces mined in 2015.
The demand for bars and coins has grown tremendously in the past few years. Silver bullion coins and bars went from 61.6 million ounces in 2007 to 206.8 million ounces in 2016. Need I say more about the dramatic rise of private investment in pure silver?
Here we have some concrete numbers. According to a 2017 US Geological Survey, the top three countries with silver reserves are:
1. Peru, which has over 120,000 metric tons of silver in reserve. This is a country that also produces a fair amount of silver, though mostly as a bi-product from copper mining.
2. Australia has 89,000 metric tons of silver in their reserve.
3. Poland clocks in with 85,000 metric tons of silver.
Recent industry discussion have focused on the supply of silver rising upon a recovery in price. The primary reason given by the researchers at HSBC was that primary silver mines just won’t produce as much.
Given this trend, and with no expected decrease in demand, many are predicting a rise in the price of silver. Whether that pans out is not something we like to speculate in. Still, where investors think the price will rise, they should take note and pay close attention to the supply side.