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Silver Prices: Supply and Demand Disparity Could Result in Huge Returns


As Silver Prices Remain Below $15.00, Situation Turns in Favor of Long-Term Buyers

Silver prices have faced scrutiny over the past few weeks. The gray precious metal continues to slip lower, trading below $15.00 as of this writing.

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However, silver could be severely undervalued. And that means long-term investors could reap massive rewards.

You see, there’s a basic problem in the silver market: supply is failing to meet demand.

Production Tumbling in Major Silver-Producing Regions

In the first five months of 2018, U.S. mines produced 363,000 kilograms of silver. In the same period in 2017, silver mine production was 446,800 kilograms. That’s a decline of close to 19% in the ninth-most silver-producing country in the world. (Source: “Silver In May 2018,” U.S. Geological Survey, last accessed August 27, 2018.)

In Canada, silver mine output amassed to 177,866 kilograms in the first six months of 2018. In the same period a year ago, mines in Canada produced 199,638 kilograms. So, for our neighbors to the north, 14th in the world for silver production, the decline was close to 11%. (Source: “Production of Canada’s Leading Minerals for June 2018,” Natural Resources Canada, last accessed August 27, 2018.)

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But don’t get too fixated on these two countries; no matter where you look, you will see dismal mine production figures.

Production Could Drop Further

Production could actually get much worse, based on what mining companies are currently doing.

Over the past few years, silver miners have cut back on exploration; only in 2018 have they started to increase their exploration spending. With silver prices down by about 13%, it would not be shocking to see them cut back on exploration in the next few quarters.

Remember that exploration is an investment in future production. If companies cut back on one, they could be cutting back on the other.

Production declining shouldn’t be a surprise to anyone. We at Lombardi Letter have warned readers about this several times.

Silver Prices Outlook: Perfect Storm Brewing for Investors

What’s more interesting is that demand remains resilient. To give you some perspective, consider this: between May 2018 and now, there has been a robust demand for silver at the U.S. Mint.

In May, the U.S. Mint sold 380,000 ounces of silver in American Eagle coins. As of August 27, the mint has already sold almost 1.2 million ounces of silver in those coins in the month. This is an increase of over 210%. (Source: “Bullion Sales,” U.S. Mint, last accessed August 27, 2018.)

If the supply and demand situation remains distorted, the price of silver could soar immensely. But right now, it seems that investors are too worried about what’s happening on the stock market and not paying much attention to the precious metal.

I’m willing to bet that when fundamentals start to matter, you won’t see silver at $15.00. I also wouldn’t be shocked if, in the next few years, we are looking at silver prices and saying that, at $15.00, silver was so cheap.

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