It has been hard to ignore the rising cost of most silver products in 2022. Premiums on popular silver bullion products, Silver American Eagles, have risen, making people wonder if there is a shortage of silver. Demand for silver has grown as new technological applications for it have been discovered, so we are experiencing a shortage since the demand has become greater than the supply available.
In economics, a shortage means that the demand is greater than the supply. In a free market, the price adjusts accordingly until demand and supply are aligned again. This is a constantly moving target in the real world. Some media sources will use the word shortage to describe what could more aptly be called a crash. When we say there is a shortage, we’re describing the economic reality where the amount of silver being mined is less than the amount in demand. Of course, there is silver that was already above ground, so we have dipped into those stockpiles as part of the available silver supply. The size and availability of those stockpiles are in debate right now, which is one reason why some media personalities are saying there is a shortage while others say there is not.
In 2012 the supply of silver from mining, recycling, net hedging, and net official sector sales was 1,008 million ounces. That was enough to comfortably meet the demand of 979.8 million ounces that year. However, in 2022 the supply has totaled 1,030.3 million ounces, which has not been enough to meet the demand of 1,101.8 million ounces. This data is from the Silver Institute, which published the results of studies conducted by a consulting group called Metals Focus.
Why Is This Happening?
The Covid-19 pandemic slowed the mining and production of silver products during a time of economic uncertainty when more people wanted to invest in precious metals. Looking at the chart above, you may notice that while supply has declined steadily from peak levels in 2016, there was a sharp drop in 2020. Since 2020 the demand for silver bullion has grown as more individuals want to diversify their holdings. Unfortunately, the strain on the supply chain has also grown, resulting in institutions like the U.S. Mint being on allocation.
Another driver for the increasing price of silver has been the increasing demand from industrial applications. Silver is an integral component of many everyday items, such as batteries and electronics, and is used in medical devices and engineering projects. Silver is also used in electric cars and solar panels, so as green technology becomes more mainstream so does that sector’s need for silver.
What Does This Mean For Future Supply?
This shortage does not mean that there is no more silver available. It means that for now, the demand is greater than the supply.
Until production catches up with demand, there is likely to be additional upward pressure on the price of silver in the future. It is important to remember that when a shortage does occur, it is unlikely to be permanent. Eventually, production will catch up and the market should stabilize.