first majestic silver

The Silver Deficit (1942-2004)

April 9, 2006

"Because of the long-term structural deficit in silver, stretching back to World War II, we have consumed inventories for more than 60 years."

-Ted Butler, "The Coming Silver Bubble"

This essay will seek to prove what Mr. Butler and other silver bulls have been confidently asserting for so long, that is, the claim that silver has experienced a supply/demand deficit which stretches back all the way to 1942.

The Silver Deficit

Note: Anyone who is skilled at making charts is encouraged to make use of the data that I will be presenting in this 7-part series on silver. I only ask that you share the final product with me so that I can make use of it in my upcoming essays.

One problem with documenting the silver deficit is that world consumption rates are almost non-existent prior to 1955, at least according to my research. If this data is available, please bring it to my attention.

But despite the lack of official figures, one can know to a fairly accurate degree how much 'deficit' has accumulated worldwide in the years prior to 1955 through the use of some comparative math.

In order to accomplish this, we must first obtain US silver consumption data. Then, in order to determine the total world consumption of silver, we simply find what percentage of the world's consumption the US represented. Luckily, there happens to be a small amount of data pertaining to this subject hidden within the Minerals Yearbook dated 1932-1933.

From the Minerals Yearbook 1932-1933 (pg. 18) we discover that total world industrial and arts consumption of silver was 91.4 million ounces in 1930 and 70.1 million ounces in 1931, whereas US industrial and arts consumption of silver was 36.4 and 33.7 million ounces respectively. Thus, U.S. industrial and arts consumption (not including coinage) amounted to 40.1% and 48.1% of the world's total consumption respectively, or an average of 44.1%. But since these years coincided with the beginnings of the "Great Depression" I thought it would be wise to evaluate this ratio once more at the next earliest point in time where the appropriate data is available in order to formulate a more certain comparison.

By looking at US industrial and arts consumption from 1956-1960, we find that on average the US consumed 96.8 million ounces while the world consumed 211.7 million ounces. Thus, the US represented 45.7% of industrial consumption during this period. Furthermore, from Minerals Yearbook 1958 we read, "the United States Continued to account for virtually half [let's assume 49%] of the free-world consumption of silver (excluding coinage)." This agrees very closely with data obtained from the years 1930-1931. I will therefore be using a median figure of 45% (note that the actual average between the 4 data points -- 40.1%, 48.1%, 45.7%, and 49%-- is 45.55%). I have weighted the average slightly lower for the simple reason that the US appears to have consumed less of the world's total silver supply the further back one goes into the 20th century. Since we are concerned with the years prior to 1955, this makes good sense.

What this 45% figure means is that I will assume US industrial and arts consumption of silver represented 45% of the world's total in all the years where only US consumption data is known, namely 1901-1954. We can then find the estimated total world industrial consumption during these years by dividing the US consumption numbers by .45 (or 45%).

Some Important Notes Concerning the Table Shown Below

1955-1984: World Consumption totals are free-world only, and are therefore underreported by an estimated 30-60+ million ounces per year based upon an annual production from communist countries of 35-55 million ounces during this period (see the year 1985 in the chart below for reference). This is important because during this same period total world production adds the estimated production from communist countries into the total, thus explaining why in some years there appears to be no deficit at all when in reality the deficit continued (e.g. 1955 and 1981-1985).

  • 'e.' stands for estimated
  • All years in RED are years in which there was a worldwide supply/demand deficit (1942-2004).
  • Industrial and arts consumption stands for total silver demand minus coinage demand.
  • Several years have two quoted values for various calculations, one 'net' (i.e. total demand - scrap) and the other 'total' (i.e. demand from industry, arts, and coinage, without taking scrap recycling into account).

This essay, especially the table shown below, has been shortened significantly for the sake of brevity and readability. You can access the complete, unadulterated version HERE, one which includes the complete data set for every year since 1900 along with some additional explanatory notes.

Again, I must emphasize that I would be very excited if someone would be willing to create eye-catching visual charts with this data. All I ask is that you make me aware of it so I can share it with my readers in future essays.

Total World Silver Consumption (1901-2004)

(Reported in millions of ounces, with the exception of the totals)

Source: Minerals Yearbook (1901-1994)

Source: The Silver Institute (1995-2004)

Shown below are two methods of calculating Communist demand of industrial use silver for the period 1939-1984:

  • By estimating an additional demand of 40 million ounces per year for this 46 year period and adding it to the total we arrive at 30.1215 billion ounces + 1.84 billion ounces = 31.9615 billion ounces
  • By estimating an additional demand of 60 million ounces per year for this 46 year period and adding it to the total we arrive at 30.1215 billion ounces + 2.76 billion ounces = 32.8815 billion ounces

By adding the coinage demand during the years 1901-2004 (an estimated 4.0651 billion ounces*) to the previous total of 32.8815 billion ounces we arrive at a grand total demand for silver of 36.9466 billion ounces since the turn of the 20th century.

*NOTE: Net coinage demand was only about 1 billion ounces during this period, as opposed to 4 billion ounces. This is the result of continual re-minting every 30 years or so. But since I consider this re-minting process to be a form of recycling, I will wait to take this into account until part-3 of this series. Basically, the result of reducing the coinage demand by 3 billion ounces is that the accumulated deficit since 1942 is reduced from 10 billion ounces to 7 billion ounces.

And there you have it folks. Despite the phenomenal increase in mine production since the mid-1800s (see below), every year since 1942 the world has demanded more silver than has been produced. Therefore, silver has experienced a phenomenal 63 year long supply/demand deficit as of year-end 2004.


With a total production of 30.7144 billion ounces and a total demand of perhaps 36.9466 billion ounces, an amazing supply/demand deficit of 6.2322 billion ounces has accumulated since 1901.

However, if one begins at the pivot year of 1942, then the total supply/demand deficit is actually the staggering figure of 10.6567 billion ounces, the necessary result of a 63 year supply/demand deficit. The difference between this number and the 6.2332 billion ounce deficit quoted above is due entirely to the mine supply surplus years of 1901-1941.

What Next?

In Part 3 of this series we'll search for the answers to those long pondered questions of old, befuddling great philosophers and thinkers throughout the ages:

  • What is the real silver deficit (i.e. how much silver has literally been consumed by industry?)
  • How much silver is left above-ground and in what potentially market accessible forms?

Well, okay, so maybe Plato and Socrates didn't lose much sleep over the questions above, but for those invested in silver or merely contemplating it, such may be the case. If so, don't worry, because you'll rest easy soon enough.

Corrections to Part 1 of this Series:

  1. A few mathematical errors were made while tabulating the world's cumulative silver production, and all together these have the effect of raising the average total up from 44.542 billion ounces to 45.552 billion ounces (a 2.3% increase). This also slightly changes the gold to silver ratio of cumulative production, from 1:10.5 up to 1:10.7 (a 1.9% increase).
  2. Two very minor mistakes were also made in tabulating the world's cumulative gold production, but even added together they changed the average world total by less than 0.001%.
  3. I wrote:

Most would agree that neither gold nor silver is undervalued in terms of the dollar, so the only way to look at this situation is to say that silver is undervalued in terms of the dollar and gold. This means that I expect silver to far outperform any gains seen in the price of gold, even if gold doubles or triples in price within these next 2 years.

This should have read, "most readers of Gold-Eagle would agree that both gold and silver are undervalued in terms of the dollar". In other words, the dollar, along with all other fiat currencies, is vastly overvalued in terms of gold and silver.

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*The information contained within this essay is not investment advice. You must conduct your own due diligence before making an investment decision.

Minting of gold in the U.S. stopped in 1933, during the Great Depression.
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