The first attempt at creating metrics for this was interesting. However, the failure with this mostly was that a specific entity did not buy the 100m+ oz it was supposed it – but rather changed their prospectus. This took a TON of demand and did ZERO with it. Meaning, my approach was that demand would squeeze the system. My failure was to understand how the system fights demand spikes – dirty.
In this approach, I’m going to look more from a supply/forecast model which might show those with more zeros in their bank account the opportunity here with this metal. We know the demand is unrelenting, but what about supply? I stopped updating part one when a lot of the buzz died down, and they marched out the muppets talking about 60 billion oz of available supply – blatantly misleading the public, and in doing so, put ice on the movement from a deep pocket perspective.
Of interest here, one of my newer approaches to this was an article recently that I wrote about BRICS and taking gold pricing to Shanghai. I believe this will happen, and with it, many metals commodities will follow suit.
Below, I’m going to chart items in an Excel sheet, but also have explanations that correspond to every entry. I can add some more items as we go, but this to me might be something I’d be looking at most.
Rick Rule had a saying with uranium, which made up 20% of the baseload power of the US – “if the price doesn’t go up, the lights go out”. With silver in over 1,000 products, my adaptation on Rule’s quote is, “the price goes up, or every assembly line in the world stops”.
While that might sound insane, take a look at this chart that First Majestic has. This can reinforce my quote.
Consider all of these parts for a car company could be bought from other companies, then assembled in a plant in the US. I once worked for Harley Davidson (in IT) and at the time it was their only assembly plant in the country. Parts came in from everywhere. Now consider how one part from one supplier above cannot get to the assembly plant due to that particular manufacturer not able to get silver. We saw this happen with chips the past 2 years. You have to understand that since silver is the best conductor of electricity, that it is in a lot of different components. Think about a refrigerator which might have circuit boards and switches now. Might be a total of 3g of silver in it, but it’s in tiny amounts in a lot of different parts.
Item 1: DXY
I have been writing a ton lately about commodities and the BRICS+. For many years, DXY goes down, metals go up. DXY goes up, metals go down. I believe we are now at that point where this isn’t going to matter much. If DXY goes down, the metals can go up. If DXY goes up, the metals can go up. Why? Because the G7+ isn’t really in control of the metals production. Meaning, as our piles are draining, and either being consumed or going to BRICS+ countries – either in vaults or manufacturing lines, we do not have a high enough price to entice more supply to backfill what we are using. Given the DXY is a measurement essentially of G7+ currencies against each other, this measure fails to realize that in a future of 5-10 years or less, pricing power will be coming from Shanghai. Or, all assembly lines shut down.
I have used the concept of the $20 bill and the gold oz in a vault 100 years ago. Put them in at the same time, then open 100 years later, the ounce of gold appreciated against the currency by 95x. Well, so did silver and everything else. Meaning, as time goes on, the purchasing power, in currency units, degrades against “real things”. There is a time with gold/silver where this is steady, and then a time with supply issues where this plays catch up, and violently, to other things. The chart below shows as debt/money supply goes up, asset classes absorb this currency and reprice higher – they weave and bid for attention.
I feel with short term trading, you may still see algos smash things, but long term (vault, gold) – price of silver has to rise, or assembly lines shut down.
Item 2: Real Rates
With this, I used 10Y-core CPI, as I couldn’t find a % on CPI with tradingview. If anyone has a good way to find real rates here, please let me know. I have heard this a lot of different ways, including “inflation expectations”. If inflation expectations are 2% and 10Y is 3.5% or so, it’s a positive real rate. However, what IS, is over 6% inflation with a 3.5% 10Y which shows a negative real rate. Meaning, anyone who wants to buy at this level is intentionally losing purchasing power, today. However, if expectations are much lower for CPI, one can argue they are buying a 10yr now for a better return later.
Using the above chart, you can see how two previous times this has been below zero – 1975 and 2011. Both of those correspond to all time highs in gold, and this was no different – as we hit $2088 or so with the Ukraine invasion. However, it is tracking up towards zero, but still deeply negative. As long as this is negative, it shows buying treasuries lose purchasing power, which might have gold being a defensive asset that could then catch a strong bid.
Item 3: Debt Load
While this is historic and getting worse literally by the minute, we are now running higher on debt to GDP, which insinuates that there will be default through lack of payment or purchasing power. Since we can “print money” and those in charge espouse MMT, it is reasonably to assume inflating debt away is the strategy they want to pursue.
Put plainly, this all but assures almost permanent negative real rates with possible Yield Curve Control – leading to stagflation for perhaps 5-10 years. No one in Washington can ever get elected on cutting budgets, so budgets will continue to bloat. Raising taxes is unpopular, so inflating debt away with sustained inflation is the only way to skin this cat politically. Then, you blame policy on “greedy” corporations as your scapegoat politically. Note that this type of situation has a nasty side effect of punishing corporations, and earnings/growth, and thus can assure stagflation for an indefinite amount of time.
Cash will leave stocks, which are wildly bloated and run to assets to preserve spending power. Treasuries are a favorite, but gold will increase the percentage of holdings here as not only does it promise to rise in a risk off environment, but De-Dollarization and BRICS+ gold involvement may make this a necessity to hold to hedge against dollar spending power decline.
Item 4: De-Dollarization
I have extensive articles about this, so I’m not going to go nuts here. 11 years ago, the dollar was 65% of the world’s reserve currency. Today it’s 60%. The US has sanctioned roughly 1/3rd of nations on earth and with seizing Russian foreign reserves, has flat out weaponized the world’s reserve currency. BRICS+ growing by the day. Ghana and China can now avoid USD to buy oil. Other countries to follow. This does not mean “dollar collapse” in a year. It means perhaps over 3-5 years, you may see more draw downs in foreigners owning UST (like China and Saudis who have drawn down) as well as many countries using USD to buy gold – as last year was the largest CB gold buying on record.
As gold runs, silver will follow
Item 5: Gold to Silver ratio
For a lot of this here, I will discuss how much of this is good for gold, but what you can also see is that the GSR is in the top pink area, meaning that it is FAR stretched to historic GSR values. If gold moves hard to $2500-$3000, silver will then catch up and go far beyond gold’s performance. At this rate, you can potentially see a lot of value in buying silver rather than gold here, as gold could go from $1850 to $2500, but this could then also have silver going from $22.30 to $50 in a 50:1 scenario to get it in the green. If gold overshoots to $3000 with BRICS+ re-introducing gold, and silver outperforms to a 20:1 ratio, that is perhaps a $150 silver price. These are not silly numbers, but you will continue to see here how likely this can be.
Item 6: QE
Currently, this is listed as bearish because we are tightening. Gold was potentially sniffing out a top in FFR and then perhaps sniffing out a pivot. At issue here is that gold was moving anticipating a lot more currency creating with more rate reduction ahead. However, I believe there are still trillions in cash on the sideline and the markets now are trained to go risk on at the blink of an eye. I believe that before a pivot can happen, serious damage needs to be inflicted on the stock market prior to ANY down move. This was part of my 2023 macro forecast.
Item 7: price
I put this as “bullish” only. Anything over $20 I think is bullish for investing purposes. However, anything under $25 is also terrible for miners and continues to have silver primary producers disappearing. Over $30 I believe we start to then get the Giffen Good people back to chase it. So even though silver was smashed, as long as it’s above $20, the macro to me suggests this is very bullish.
Item 8: Supply deficit
I have written extensively about this here – and will cover some other things, but the Silver Institute admitted a 194m supply deficit from last year. This, to me, was eating up a lot of 1,000 oz bars. They got it from somewhere. Some may say, “they got it from ETFs selling!” OK. But it was consumed and put into products. It’s gone. Meaning, even if 150m of that was selling from ETFs, it’s 1000 oz bars that are now in all parts of all of those cars above. It drained bars into industry.
How do you find 194m oz for 2023? Take it from ETFs by pushing price down and getting people to sell. The first idea here is to rob the cookie jar of the existing bars before they can raise price to help the miners.
Item 9: Number of silver primary miners
I posted an article on the amount of silver miners left – that have over a $100m market cap. I think I’m at five now. There are many others like Impact silver which might have high percentages, but produce tiny amounts in the grand scope of things. With MOST miners that produce silver now having a primary metal OTHER than silver, you then see this as base metals or gold producers that happen to also have a silver kicker. Why? The prices have not risen, and better profits to keep the lights on are happening with other metals. What this really means is that over a sustained period of time, less exploration and “silver” mines will come online, and you will be greenlighting more lead, zinc, and gold mines that just happen to have silver.
Most do not realize this eventuality. Sustained decreases in world silver mining production. At a time where demand is growing exponentially.
This chart is broken due to my totals missing some things that I have to fix, but I’ll do that tomorrow. For now, you get the idea.
Item 10: Number of silver near term producers
You have Silvercrest and MAG to add here. Silvercrest I think is in production, but not fully ramped up. MAG is coming, but had some delays. These mines could add a nice bit of silver to the world markets – perhaps 10-15m oz per year at some point. But remember, ore grades are consistently declining and less and less silver mines are being built. So while this may add 15m oz to the 834m from last year, there’s a degradation here that most are not tracking as base metals and gold miners have silver mine lives near end of life. This 10-15 may only help replace some of the degradation, but doesn’t even begin to address the 194m supply deficit. With these two adding silver soon to supply, it can be somewhat bearish for price as these new producers will be eager to sell into the markets. It can relieve SOME pressure, but look at the deficit numbers. They would go from perhaps 194m to maybe 170m. That’s still a massive number.
Item 11: Number of big silver projects
Right now, I’m excited with Aya upsizing Zgounder over the next few years from 2m to 8m oz produced. But….194m supply deficit folks. And that’s 6 more million oz 1-2 years from now. You need to understand there are really only two big projects that I’m aware of – maybe a handful others I’m forgetting, but you have Discovery silver with 1b oz (600m oz for PEA) and Bear Creek with over 500m oz. Chesapeake also has 500+ m oz silver, but has a byproduct of the gold. Both Discovery and Bear Creek are thought to be viable and to be approved/built by 2026, but both may require hundreds upon hundreds of millions in investment capital. Both may need $25 silver to be very profitable, but $30 might be a certain greenlight.
At $22.31, I cannot see either of these projects getting a greenlight, as there’s too much downside risk to $19 and therefore be losing money. Both of these can produce significant amount of silver, but IMO $30 is almost a requirement at this point to get it going, and held for some time. These can add perhaps 20-40m more oz per year to supply. At this price, however, some other mines may come off of care and maintenance and help the supply situation. But these bigger projects would not probably be at full production until 2027?
Chesapeake is out there, but really not a lot of movement in a long, long time. They have no water to the best of my understanding, and while they say they cracked the metallurgy, many are not convinced. That’s the major risk with Chesapeake, which could be a monster if ever built. But silver would be a byproduct of the massive amount of gold as the 13 or so gpt of silver is low for even low grade silver miners.
Item 12: Time to get a mine online
Many might want to talk about some other projects out there – I like Reyna and Blackrock, but these things are very, very much not ready for primetime. Maybe another 2-3 years of exploration, if not more – before the PEA type of thing. Those MAY have a shot in 7-10 years, but if you are just looking today for where to go, you are looking at greenfields of 10-15 years if not more.
Then, consider the permitting issues in certain jurisdictions. Political risks in Mexico, Peru, Bolivia, Argentina. Jurisdiction risks in many others. Getting a mine done is not as easy as snapping your fingers and standing one up in a few months. These risks all mean, in a sense, that no real relief could come in the supply deficits for many years – at least until perhaps Discovery/Bear Creek come online, but with nearly a 200m oz deficit each year now with increasing demand, no one realizes how bad this situation is.
This “metric” would only really change if countries fast tracked some big projects, which could happen in a few years once the politicians understand the problem.
Item 13: COMEX registered
Currently at like 32m, and this is the lowest I’ve seen it. 2 years ago at Silversqueeze, this was 150m. This is the “showroom floor” silver. There have been hundreds of millions diverted away in ETP with the LBMA. This is ridiculously low, and shows roughly 22x what is for sale has been sold. Much of what has been sold could be legit hedging and forward production by base miners, but we know that the amount short is not like any other markets in the world. To put this into perspective, the COMEX registered holds only 3% of the world’s yearly demand. IF a run was serious, this could be wiped out in 1-2 weeks.
This shows some more…
Item 14: 1000 oz bar premiums
I don’t have the number today, but I heard the premiums have come down from highs. There are bars available on the open market. If this goes vertical, this would be a sure sign that big bars are getting really tight. I say this is “somewhat bullish” because I think they are still somewhat elevated.
Item 15: LME stocks
Given the nickel fiasco, I don’t think anyone trusts them anymore. Stocks are at abysmal lows. I am reading even molybdenum is now mooning. The question then starts to be asked, where will metals be sourced?
Item 16: Retail premiums
I put this as bullish still because while they have mostly come down from ludicrous highs, they are still far higher than when I bought in 2019 when silver was $16. It seems they are palatable enough for investors to dig back in. If this was around the premiums when I bought, I’d say the market was cold.
Item 17: Media attention
This is very bearish, to an extent. While lack of attention doesn’t have people running off the street now to buy it, the interesting thing here is this doesn’t change the rest of what is being discussed here. It is only muting a rampaging demand, not fixing the supply issues. When this is on every news report every day, it’s time to sell. Those buying on this are bag holders at $75 silver. So ZERO attention is bearish, but so is 24×7 attention.
Item 18: Gold forecast
Many can now see $2500-$3000 in the next 1-2 years. By 2030, $3000-$5000 is not silly with the amount of USD currency creation in the system. IF you see gold getting front and center to BRICS+, then $3000 is sooner than later. The only real people who are calling for much lower gold prices are the deflationists like Dent and the cycle guys, who are slaves to charts and don’t comprehend macros. No cycle guy could have called palladium. Or nickel. Or lithium. When the macro breaks, through your cycles away. Dent and others could be right on a massive draw down like a 2020 plunge, but don’t realize this is a kiss for a day or two before a rubber band slingshot back up. So, I don’t care if your charts or voodoo is calling for $900 or $1500, it’s not anywhere near the cost to produce it, and that is ultimately what drives costs.
IF energy is a leading cost to produce this stuff, and oil prices could go up much higher with BRICS+/G7+ energy wars, it would stand to reason the price of gold would go up to match it.
Meaning, if gold hits $5000 by 2030, and the GSR is reduced to 10:1 based on all supply concerns here, you could see a $500 silver price then. It’s not likely, but it’s how tracking the price of gold would work here to forecast a silver price. Even at 50:1 you are looking at $100 silver.
Item 19: LBMA stocks
Some may like to suggest “lack of interest” in silver is having silver ETFs sell into the market, but the concept here is – “where is it going”? As I suggested above, this is not 1,000 oz bars being sold by SLV into my vault. They are being gobbled up by industry where they are consumed for products. IF we see a $30 silver price again and people pour back into these, where are they getting the silver? SLV changed the prospectus to suggest not all the silver will be there. I would imagine they would buy over time, but YOLOing into massive SLV options isn’t going to compel your brokerage to buy more SLV and trigger them to buy more silver.
This chart is 6 months old, but you can see the peak of silver squeeze down to now is roughly 11,000 tons.
Here’s another chart showing the similar behavior.
It’s safe to see there have been significant drawdowns and perhaps the supplies are down drastically.
Mike above shows about 1152 million troy oz. Roughly 300m of that is COMEX, meaning about 850m of that is LBMA. Consider how I believe there are about 20 ETFs out of the LBMA vaults. There’s a suggesting by some that the “available float” there is tiny. Meaning that you have LT holders of silver, and at any given time you might actually have a small amount for sale – which might actually be reflected in the COMEX registered, to a degree.
The point here is they show you a pile and say, “look at the supply!!!”
Most don’t realize it’s like driving to a nice neighborhood with 300 homes and no for sale signs. Occasionally, someone loses a job or has to move, and the occasional home comes up for sale. But those 300 homes are NOT for sale. So when you see a pile of silver like this, consider that the total bars there are about 1 year of industrial supply – and could be held by people who are looking for $30, $40, $50 silver before it is for sale.
Higher prices will help this, but what you need to understand is that pile is what has been supplying the industrial shortages the last 2 years. Those bars left and went into products.
Said another way, you have about 5 years of supply deficit there before the vaults of everything are empty. Virtually none of this can be tapped without probably $30 prices. That might alleviate enough supply for 2023. $35 might get enough supply to fund the deficit for 2024. Etc. But none of this is adding more into the vault as miners are not able to backfill 100+ m oz deficits per year.
Item 20: Green movement
The Birkenstock wearing generation wants to go to the silver dispenser machine in the break room, put in $20, and get an ounce on demand, forever. More and more bans are coming for ICE vehicles for 2035. More initiatives pandering to the anti-oil people, without adding more nuclear energy. I like the idea of EVs. But….government forcing, pushing, and pulling everyone to this finish line without dealing with adding electrical generation, transmission, and materials (mining) is probably the biggest political blunder in US history as none of them have any idea this is where the silver, cobalt, copper, nickel, and other metals come from to produce their “green” EVs.
Which can ONLY be mined with this (to any real extent)
Read: massive amounts of diesel and mining are required to do this, and over the last 40 years, they have pushed prices down so much that it isn’t even profitable now at the far reaches of the earth with the cheapest labor possible.
Furthermore, most do not realize that we don’t really produce a lot of metals, and I have hypothesized that in the next few years, we lose price control of all metals to BRICS+ who I feel will offer better prices to miners and ALSO have a physical exchange. The COMEX won’t go away for hedging metals, but it will not be a price maker, but a price taker from Shanghai. This means no more 8AM smashes as 22x what is for sale is sold.
Over the next few months, I’ll add a few more things and bolster this a bit. As a new chart is produced, I feel we might have a better way of communicating to the world how this is going from a 50,000 ft view.
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