Review of silver shortage

Most silver is obtained from mining operations where silver isn't the primary product. Half of the world's silver comes from mines whose primary product is copper. At the mine rocks containing copper, lead, zinc or other minerals are crushed into a powder and then treated to separate the different minerals. In this first refining process done at the mine site an alloy containing silver, gold, and some impurities is poured into large bars called dore.

Miners sell dore to specialized refineries. Payment is based on assayed metal content minus refining charges, providing miners immediate liquidity while refiners handle the complex purification. At the refinery, dore undergoes rigorous processing to achieve investment-grade fineness of 99.99% silver. This primary supply chain accounts 80% of new silver entering the market.

Scrap materials account for 20% of new silver. With industrial demand increasing refineries around the world are running at near full capacity. While some people propose that scrap silver can make up much of the silver deficit, the problem is refining capacity. When the price of silver jumped in January many refineries were turning away scrap silver because they had a sufficient supply. Buying the scrap silver that may not be processed for 6 months ties up credit. The Silver Institute estimates that refineries can increase their production of silver from scrap by 7% in 2026. This is far too low to have a meaningful impact on the silver shortage.

It's simple math to deduce the supply of silver will not meet the demand in 2026. Ramping up mined silver quickly is impossible despite the much higher silver prices. The Silver Institute has estimated mine production of silver can increase 1% in 2026. The industrial supply deficit will need to be filled by melting down 99.99% coins and bars. To get these coins and bars out of the hands of investors it will take much higher silver prices. Barring a worldwide recession where production of solar panels, EVs, and electronics is greatly reduced, the price of silver is destined to go higher.



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