No. Not yet, anyway. Not for a long, long time. Longer than long. Like you may be dead long. But – let’s look at this deeper.

In this piece, I am going to talk a little econ 101 that many of the shills have not taught you about. You are well intentioned, but they are sneaky with not giving you the other half of the equation – demand. This will help you hopefully understand the markets a little better and what drives the price – and what doesn’t. For now.

I write about a lot of other things here, and one thing I write a little about was my chess glory days. Many of you play “blitz” games. You are in and out in 3-5 minutes. I have played World class chess at the highest levels in the World Open in 1991 when I was 15, and my night had a game I recall being like 6 hours long. I won. In chess, there’s a lot of strategy that teaches you about how to think about things down the road. Many of you see horsies or castles, but fail to see how a game like this can teach you to think things out 5-8 moves ahead in life. With your Blitz games, you are playing repeatedly 1-2 moves ahead on instinct, and lack the ability to properly calculate out how things can occur, within a reasonable scope of probability.

I’m here to unpack this 8:1 ratio, what it is, and why it doesn’t matter, today.

We hear Keith Neumeyer talk about how silver is now found at 8:1 to gold in the ground. He’s up in arms about how the silver price is still so low. Many of you have taken on this fight, and point at the rarity then to talk about how the price should be higher. The problem is – you are right, to an extent, 20-30 years from now. Today, that 8:1 doesn’t matter, at all.

Why?

Rarity

Rarity alone does not make something valuable. Consider platinum is 30x rarer than gold, yet half the price? We can then talk about my 3 year old’s one of a kind finger painting? Isn’t that ONE of a kind and rare?

Many people who do not take econ 101 fall into the trap of rarity. What they don’t realize is that you need to have demand for that supply to then find a rational price point. I can ask for $1m all day long for my son’s 1 of a kind finger painting, but there’s no demand there, at that price. In fact, there may not be a bid there at a nickel. However, consider if 20 years from now he becomes some art prodigy and this record of his finger painting is his first ever piece done. Could that fetch $20? $100? $10,000? Who knows – but once the DEMAND for the product comes in, you then have those wanting to buy working in conjunction with those holding supply.

My econ professor asked – “what is it worth? Only what someone is willing to pay”. Meaning, you need that demand to actually create price points.

This is what the supply/demand curve looks like.

You can see at INITIAL demand, it intersected with the blue supply line. As the red demand curve moved, the price point went higher. Now – you aren’t an economist just yet, as this is taught usually in the first 10 mins of any economics class. This gets….nuts. Here’s some scribblings from one of my econ tests maybe 20 years ago.

I can’t pretend to remember even a fraction of that, but this is where I have problems with the Bitcoin Bros. “There’s only 21 million bitcoin ever!!”

So….what.

Where is the demand? What is its practical use case? I get venom slung at me over this. But it’s the same argument of the 8:1 or the fingerpainting. You need demand. And the ONLY way many of these people get demand is by talking about its rarity and simply telling you that it will go up in the future and be a million each. Because…NETWORKING!!

I’m sorry, but even the most novice person dealing with econ 101 recognizes the fallacy of the entire bitcoin movement. It’s not that the blockchain isn’t useful. It can be. I am HIGHLY in on “Asset Backed Digital Currencies”. Bitcoin is Beta Max, and ABDCs are Blu Ray. It’s not that the Beta Max wasn’t that important, it’s just that technology and application of the technology evolved, and now bag holders of bitcoin now have to sell to you that there are only 21m Beta Max players in existence. So….what. They need to tell you that because of how RARE this is, that someday someone will pay you $1m for this asset – but they are of course ready to sell this to you today at 30x discount of $33k.

Rarity does not mean value. It means….rarity.

Now – IF there is some sort of mass adoption of bitcoin down the road and hundreds of thousands of businesses offer this as payment along with Visa/Mastercard, then you hit the jackpot. That is….SPECULATION. And many people buying bitcoin today do not understand what a speculation is, and they are being sold this lottery ticket. Let me tell you something – if you bought Bitcoin at $50 and sold a lot for $70,000 – you are a world class speculator. AND – if you were part of that hype machine, you made a LOT of money. No one is denying the speculative value with this. But speculation also implies a high degree of risk many of you do not grasp when investing your life into bitcoin. Where many of you can healthily speculate at 1-3% of your discretionary income – snake oil salesman have tried to convince you to dump everything you have into it. Why? Because they need to drive up demand to force the asset price up so they can sell it to you at that higher price.

This is why the crypto story, for most, will end terribly. Have there been winners? YES! Will there continue to be winners? Yes! Will there be a use case 10 years from now for some of this? Perhaps. But if this is indeed a million dollar idea, it makes perfect sense to use lottery ticket money on it. Meaning, mega Millions is now $1.55 billion. Does it make sense for me to drop $20 on it? Perhaps. Does it make sense for me to drop $50,000 on it? No. If you want to speculate in bitcoin, no issues here – just be responsible and don’t get over your skis.

Demand

With respect to gold, we can see that central banks buy TONS of it. Jewelers buy it to make jewelry. Wealthy people buy it to hedge their holdings. The DEMAND is as a form of money, and has been for 5,000 years. With respect to platinum, you have people talking about how it’s a catalyst to produce hydrogen and it is used with catalytic converters for cars/trucks. That is an INDUSTRIAL demand. In a situation where economies tank, you tend to have a risk off event where rotation into gold happens as a monetary hedge, and money is removed from equities – which then drains industrial demand of just about everything across the board.

While I am not the arbiter of if the hydrogen revolution will happen with EVs, it’s important to understand demand drivers for a specific market.

With respect to silver demand, it is pretty rare in that it has BOTH an industrial AND a monetary demand. In times that are good – less people are buying it for “money” and more are buying it to produce goods. In bad times, you can see demand pick up for money, and less with industry. However, over the last few years, demand has kicked up dramatically which has been creating deficits.

You can clearly see a deficit here of 237 million ounces last year. OH MY!!

But you have to understand that this increased demand then needs to draw that deficit from somewhere. If there was a pile of 237m oz of silver sitting in a vault, and all of that was exhausted – we can then see that vaults would be empty now, and industry would stop producing due to the lack of silver. That is more certainly not the case.

However, this is getting to a point sort of like a Taylor Swift concert. There are 50,000 seats, but ticket prices get bid up. There are more concerts in the future, and you could wait to buy tickets for that concert, or you can pile in and outbid someone. However – that means that someone who already bought a ticket would sell it to you at a certain price point. Mother and daughter can go for $1200 by buying tickets at 4x what someone else bought them for. That is demand that overwhelms AVAILABLE supply and by sheer nature of price, the asset is relinquished.

The vaults are not empty. There are Taylor Swift seats next year.

Supply

At issue here is a few things. Supply in the ground and supply above ground. Keith Neumeyer is talking about the supply in the ground at 8:1. It is definitely worth noting. I have also seen silver analysts saying that at the rate we are going, we may exhaust all silver within 20 years from in the ground. However, there’s some chess moves that have to happen prior to then.

There is approximately 60 BILLION OUNCES that have been mined, in history, above ground. At this point in time, it is ESTIMATED that 4-5 billion of these ounces are in bars, coins, and rounds. KN had also tried to do SILVER recycling companies and these had failed – due to the silver price being too low to make it economical. This is different from GOLD RECYCLING companies, that have silver as a BYPRODUCT.

Each year, there’s about 800m oz taken from the ground, and 200m recycled. This past year, there was a 237m deficit. This was taken from somewhere, and it appears this was from the bars in vaults. So now instead of 4-5b oz, there’s 3.75 to 4.75b oz available in bars, rounds, and coins.

The next question is, at what price does this supply become available? Could a lot of this supply have been unlocked when $30 was hit? Yes. How many more millions or billions are available at $30?

See – you have the banker/analysts pointing at a pile and saying “gobs of supply”. But there is an asterisk there. “Supply at what PRICE“. And that is what happens with the supply/demand curve. Over the course of many years, stacks have been created (stock). Now we are at a point where this stock will be drawn down, it’s just a function of price. See: supply/demand curve above.

Assume we have 4 billion oz in bars, rounds, coins. Assume we have 250m oz deficit every year. The deficit isn’t shutting down production, it’s just taking from this stock. However, it needs to be SOLD. This is where the pricing gets dicey. Anyway, that means we have 16 years of stock at this deficit level before the vaults are EMPTY.

Again – at what price.

If you cannot entice those who hold the above ground stock into selling to you, then you have to raise price offerings. The higher the price, the more supply stock becomes available. Again, this is econ 101.

What is also missed is that as price points go up, more mine supply can come back online. There are silver mines out there that are on care and maintenance because the AISC might be $25-$35 per ounce. It might take a few months and a few million to start it back up, but at $50 silver, that’s a no brainer. Meaning, price has a form of ceiling with:

  1. available supply stock able to sell into higher prices
  2. mine supply ramping up to sell into higher prices

But – there’s also more…

There’s potentially 25b in silverware, tea sets, electronics, solar panels, and stretchy pants now. At higher price points, more of this could come in to be recycled, and with this, the higher prices could make silver recycling much more attractive. Currently, we are seeing 200m a year in recycling, but what if prices hit $60? Could recycling go up to 500m oz? Do the refineries and the like have the capability to recycle that much?

And there’s more – there’s another 30b in dumps or locked into electronics lost. If we somehow chew through 4-5b oz of bars, coins, and rounds at 250m oz deficit per year, then chew through 25b oz of candlesticks, solar panels, tea sets, and silverware – we then may have $150-$200 silver to make silver mining of dumps economic.

Meanwhile, it does seem that perhaps 20 years out, we could exhaust a good deal of silver mines. To stand one up today, you might be looking at 10-15 years of drilling, permitting, and a few hundred million in investment.

Today – there’s only a few silver “primary” producers with over $100m market cap. I think we might be at 6 now. Most of these companies have switched to gold or base metals as their primary metal.

So we are not scraping the back of the vaults for the last bars. We are, however, running into a period of time where silver AT THIS PRICE has willing sellers. Mathematically, that will drive prices higher. Because of how the futures is structured, it is likely that any sharp types of moves could cause short squeezes. Hence – the talk of a palladium-like move of 5x.

So at 250m oz deficit to draw down above ground stocks is a matter of price and time. At today’s price, there may be 1-4m oz at this price. At $.10 more, maybe another million. At $1 more, maybe 10 more million. You get the idea. At $1000 an oz, my guess is all 4b oz would flood the market and crash the price to $20. But remember, at higher price points, the recycling picks up. So do mines. Even at 500m oz deficit, you are looking at 120 years of above ground silver remaining. However, remember – you would have to mine that from dumps at perhaps $1000 per oz.

It is there. Just not at this price.

So, 8:1 in the ground doesn’t really matter, at this moment. Or for a very, very long time.

Conclusion

I’m one of the biggest silver fans out there. My “play” runs a few potential scenarios. In the short term, I have the doom trade ahead. When rates finally pause, gold could start a strong move to kick in the door to $2500 by the end of the year. Who knows when. I don’t. This should crack $30 with silver and for me get me a strong, strong move with my miners. Hoping for $40 silver. Most of what silver I do have was bought around $16. It makes sense around $40 to sell half.

I would assume there would be some sort of recovery in markets, and these profits can be nice to just play an index fund into a reflation trade, mixed with inflation.

My “mid term” here then is dealing with the dollar getting double tapped. Maybe 2026-2030. We could see here the $125-300 crazy numbers. This could be some form of crazy inflation. No one “knows”. I’d probably have reloaded miners by now. I’d also have perhaps then re-bought a lot of silver with equity profits at $30 or so – which might be the next floor. This also might be a good time to speculate on silver recycling companies and silver companies that mine from dumps. Spec money.

My “long term” here is when we truly start to see issues with silver in the ground. The 8:1 then along with all of the demand that is chewing down above ground supplies may be seeing the GSR at 5:1 or even as low as 2:1. This could be 20-25 years out. If you hold just perhaps 100 oz from today for 25 years from now, you could be looking at (remember, inflation, energy, etc) $1000-$2000 silver. That could be a 60x from today. While you might cringe and laugh at that, in 1971 when gold was let off the leash, to 2011, it went up 57x. Gold started getting very hard to find on the surface and you had to dig deeper to get it.

Caveats – the one thing the supports this premise is that silver is the best conductor of electricity. What happens if new compounds come out to change that? What happens if silver is no longer used in solar panels? What happens if it is no longer used for electrical usage as potentially some lead/copper/lithium compound makes silver obsolete? Those are the types of things that would challenge this whole thing. Part of me feels that the model of silver, as is, is built like this in a future anticipation of tech replacing the need for silver. It’s the only thing I can see that really has a way of stopping those crazy numbers. Another thing could be that silver starts to get so expensive, that items are re-engineering to use copper or something that is not as conductive as silver – but far more happy for a budget. So there are risks to the thesis, but this does rely on something to overtake silver here as the best conductor of electricity.

Meaning, overall, you need to look at the mountain of silver that exists, and wonder at what price points this mountain starts getting drawn down. Furthermore, AS this mountain is being drawn down, and “easy” silver is disappearing, the reality is that mine supply will be replaced with above ground supplies for any deficits. Additionally, deep recessions/depressions may reduce the industrial need for silver, and with it, create surpluses ahead. Lastly – a LOT of demand today with solar panels could be made obsolete with more nuclear production – or perhaps even further down the road, fission. Meaning, while solar on my house is a GREAT means of reducing the stress on the grid, in a distant future electricity COULD be cheap if nuclear is ramped up and “made safer”. While there would still be a conductor need in this scenario, it would destroy a photovoltaic need for the most part. And as you are aware, this is driven by political ideology. As much as us in the middle may not agree with a lot of leftist policies, it’s those policies, over time, which will increase the PV and EV need, while making it harder and harder with ESG to mine silver out of the ground.

8:1 in the ground now doesn’t mean….anything. And anyone who studies this deeply also knows this. But it does make for a good plea to start letting the silver price off of the leash. This, of course, will probably happen in a palladium-like way. That was a 5x move, and I most definitely would not mind a 5x move to unload a bulk of my vaulted metals and sell my miners into that to get a 20x on my portfolio. That 20x gets moved into index funds and real estate for a recovery, and take those profits to reload metals on a pull back.