Ted Butler explains the rarity and mispricing of silver

coinspillThe world produces and consumes roughly one billion ounces of silver annually. That includes total world mining and recycling production and total demand, including industrial and other fabrication consumption, coins and investment demand. At current prices that comes to roughly $15 billion, making silver perhaps the least valued of all commodities. For example, gold and copper annual production is well in excess of $100 billion, crude oil near $2 trillion (even at depressed prices). In a world of 7.3 billion people, silver’s total production and consumption comes to $2 per capita. Gold’s production value on a world per capita basis is $16; in oil, it’s $240.

Because the total value of world silver production and consumption is so small on any relevant or relative basis that automatically magnifies the impact of the “at the margin” effect. If the total amount of supply and demand is small, that means that the amount remaining at the margin must also be small. The smaller the at-the-margin amount, the larger the price impact. With only $15 billion in total annual silver production value, the “at the margin” segment is also proportionately less, probably way less than $1 billion.

The fact is that it would take an incredibly small amount of buying in silver at the margin to impact the price to a much greater degree than in any other commodity or investment asset. It is this phenomenon that has fueled silver’s big gains in the past—and that will fuel the big gains to come. To be sure, none of this is having any impact on the price currently, due to the ongoing price manipulation on the COMEX. But you can only fool Mother Nature or the law of actual supply and demand for so long—and at-the-margin buying will eventually drive prices to heights that seem impossible now. — Silver analyst Ted Butler: 25 November 2015

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