SILVER: A SMALL OR TINY MARKET?
The information within is not a recommendation to buy or sell anything.
Do your own Due Diligence!
"In the U.S., there is no prohibition on financial slavery
or involuntary monetary servitude" author unknown
I leave to the reader the meaning of "small" and "tiny." Small and tiny are terms which implies comparison to something else and an opinion.
This editorial focuses on five measures of the silver market size. They are
"Physical Silver Demand"
"Physical Silver Bullion Stocks"
"Silver Stock Market Capitalization"
"Mutual Funds Focusing on Silver"
"Physical Ounces of Silver per Population"
The reasons for interest in small or tiny markets are varied. A small or tiny market allows many more people and organizations to corner or easily manipulated the market by intent or accident. Such activities are usually to provide stable prices. Sometimes, the activities are to achieve higher prices or for increasing one's power.
It is my personal belief, that a silver market corner is taking place from outside the United States. The reason is to avoid U.S. government attempts at making personal life and corporation activities difficult for those attempting the market corner. I cannot offer any concrete proof or allegations to substantiate my belief. My reason for a market corner is based solely on the logic "A silver market corner can be done", and "A silver market corner is profitable" The latter is about greed and not about morality or legalities.
In my opinion, silver prices will rise more than 20% only when the demand for physical silver deliveries are no longer made as agreed upon. Major delivery problems could easily occur at any time in 2003 and 2004. Two major reasons for delivery problems will be "physical silver investment demand increases" and "the small or tiny silver market size" becoming communicated to increasing numbers of investors fleeing other declining markets. The Internet provides this speedy communications.
The first measure of the silver market size is the annual Silver demand. In 2002, this was approximately 900 million oz./year (29,125 tonnes). At the 2003 silver market price near $5.00/oz. this represents: $5.00 x 900 million = $4.5 billion dollars/year.
In comparison, annual world Gold Demand is about 80 million oz. (2,500 tonnes). At the current gold market price near $400/oz this represents: $400 x 80 million = $32 billion.
The following are some other market numbers to compare with:
PHYSICAL SILVER BULLION STOCKS
A second measure of market size is the amount of silver metal stocks available to global world demand. These silver stocks have been diminishing for the past 10 years. These diminishing silver stocks have been labeled "disinvestment silver." Disinvestment silver is where silver has come from to fill the silver demands not met by recycled silver and newly mined silver.
There is much secrecy as to physical silver stocks. Few physical silver holders publish numbers. Similarly, numbers for paper silver (non physical silver) from leasing and so forth are mostly unknown to the public. Therefore what figures are published, are estimates at best, including my own estimates.
CPM group in New York, Goldfields, and the Silver Institute provides similar estimated totals.
My January 2003 estimated silver bullion stocks world wide are:
(Total is decreasing at 50 to 100 million ounces per year. since 1990)
The total value of the above silver is (500 million oz.) x $5.00/oz = $2.5 billion This silver represents about 56% of the 2002 annual demand of 900 million oz. For the first time in the past year, , there appears to be a category of silver holders whose silver holdings are now designated "investment silver." Many holders of "investment silver" have the ability to hold their silver for years in order to obtain higher prices.
In practice, many silver holdings including silver artifacts are not for sale unless the holder is offered much higher prices.
Examples of silver as artifacts (has to be extracted from individuals and refined) include sterling silverware, jewelry, and photography. In my opinion, this silver is not likely to be sold or made available in significant quantities until silver prices exceed $15/oz. The market channels mostly do not exist to easily facilitate obtaining this artifact silver. In 2002, the silver refining capacity was limited to about 200 million oz/year.
The following table is my estimate of such silver artifacts.
SILVER STOCK MARKET CAPITALIZATION
Capitalization is defined by my understanding as the number of shares outstanding multiplied by the current price share.
A third measure of the silver market size is total stock capitalization. There are less than a dozen publicly traded companies that focus solely on silver. I have listed nine companies in the table below. AEM promotes itself as a gold miner, but does produce significant silver. Penoles is a Mexican Corporation and mine which does not trade on U.S. stock market and is a pink slip trade. Penoles produces large amounts of silver and is on Gold Eagle's Silver Seven Index. Penoles is known for production of base metals and was not included since it is not a purely silver stock play.
From the table, it is obvious the total capitalization for pure silver stock plays is less than 3 billion U.S. dollars
Note: Prices on January 27th
Canadian dollars multiplied by 0.63 to get U.S. dollars
Most mining stocks which produce silver also produce other metals including gold, lead, copper, and zinc. About 70% of the 500 million oz = 350 million oz of silver from mining comes as a byproduct from mining operations for other minerals.
Therefore a capitalization value was obtained by totaling the companies which also produce gold or just gold. The "Mineweb" article by Tim Wood on January 2nd, 2003 puts the combined capitalization total for most (about 100 companies) of the publicly traded gold and/or silver mining companies at 68 billion dollars in December 2002.
The following website produces a similar list with a capitalization total of 80.9 billion dollars.
Bianco Research reports that the total U.S. market capitalization stands at 10,000 billion dollars which is 100% of the U.S. 2002 GDP. Total U..S market capitalization has been 18.3 trillion (183% of GDP) in March 2000. The 1929 stock market capitalization peak was 81% of the GDP.
There has recently been financial analysts, financial pundits, and newsletter writers suggesting that most portfolios should contain between 1% and 5% of the value in precious metal stocks.
Assuming most portfolios are readjusted to 1% in precious metals, and 1/10th of that into silver mining stocks, that represents (0.1% x 10,000) = 100 billion U.S. dollars of capitalization shift into just silver stocks.
A parallel is the Japanese savings which represent about 10 trillion U.S. equivalent dollars. A 0.1% shift into physical silver or mining stocks represents another 100 billion U.S. dollars.
I do not know the total capitalization European and Asian markets, but I suspect the total capitalization is several trillion equivalent in U.S. dollars. A portfolio change to include 0.1% in silver would probably be at least $50 billion U.S. dollars.
MUTUAL FUNDS FOCUSING ON SILVER.
To my knowledge, there is not a single mutual fund which focuses solely on the silver market.
There are about 30 U.S. mutual funds specializing or focusing on the precious metals market of gold and silver within the 12,500 U.S. publicly traded mutual funds. These 30 mutual funds are said to have stock holdings with a capitalization of about 6 billion dollars. A few of the 30 funds also hold physical gold and silver. In comparison the remaining 12,470 U.S. mutual funds are reported to have a capitalization stock holdings near 6,000 billion dollars.
PHYSICAL OUNCES OF SILVER PER POPULATION
The 2002 world population is six billion people. It is been reported that as much as 40 billion ounces of silver has been mined throughout history. Much of this has been lost by consumption and discarding of it since recycling of the artifacts (especially electronics) was not done. If the India estimates for privately held silver artifacts is closer to 6,000 million ounces are correct, every person on earth could physically own between 1 and 2 ounces of silver. For the purpose of the following table, I am assuming, it is mostly not available and consumed.
I am assuming the total silver is equal to two years of mine production and recycled silver at 750 million oz/year = 1,500 million oz. Add to this the estimate silver stocks of 500 million oz. The total is 2 billion oz of silver.
There is not enough gold for every person in the world to physically hold in their possession and one ounce of gold. Current estimates are that 4 billion ounces (130,000) metric tonnes of gold has been mined throughout history. Nearly all of the mine gold has been recycled throughout the centuries. Central banks are said to own about 1.1 billion ounces. However, rumors are that banks have leased out 50% of the gold, but carry this gold on the accounting books by pro-forma accounting even though they do not have physical possession. The remaining physical gold is privately held in art, artifacts or bullion.
The following table shows some possible theoretical distributions for gold and silver. Gold is priced at $400/oz. for the table. Silver is priced of silver at $5.00/oz.
Table of a theoretical distributions of silver and gold.
All flames and comments are appreciated. I reply to most e-mail.
My e-mail address is: email@example.com
January 31, 2003
Email this Article to a Friend