Silver market basic informations

We collected a couple of things that are good to know regardless of you are speculating for silvers’s price, a silver mine stock, or buying tangible silver:

Silver consumption

Pure gold and silver are very soft and ductile. On the other hand their alloy is a lot more suitable for making coins or jewelry, eg.: white 9 carat gold contains 62.5% silver and 37.5% gold, 18 carat gold contains 75% gold and 25% silver.

Tangible forms of silver, like coins and bullions are often used for investment purposes, however thanks to its alloys’ good characteristics it is also used for making utensils (silverware).

Total consumption of silver was 876 Moz in 2011. Industrial applications mean the highest demand for silver (486 Moz in 2011). Next largest applications of silver are jewelry (159 Moz) and coins / medals (118 Moz).

Silver production

According to 2011 data, world’s silver production was 761 Moz (cca 23 000 t) and top silver producers were Mexico (152 Moz), Peru (109,8 Moz) and China (103,9 Moz)*.

Annual production of silver is about 10 times more than the average annual gold production.

Today silver is produced mostly

  • as byproduct of refining copper, nickel, gold etc.

  • with Parkes process which removes silver from lead ore

Extraction costs

Opinions are divided about silver’s extraction costs ? one can find a lot of calculations about it. It looks like that silver extraction costs are a lot closer to the market price than gold’s average extraction costs (317$ / oz).

This is important for multiple reasons:

  • Silver producers can suffer losses easily as silver price decreases

  • Because of the losses silver extraction can stop at several locations. This can cause a drop in silver supply.

Silver reserves

Silver is easily retrievable for further use from bullions, coins and jewels but it may be problematic to retrieve it from certain industrial applications.

This means that people may sell some their of silver products if price is high enough causing extra supply on silver’s market. But this effect does not seem to be as strong as in the case of gold.

Balance of silver market

As we mentioned earlier, silver’s total production was 761 Moz and total consumption was 876 Moz, so total production is not enough to cover total consumption. This is why silver reserves become important. Silver market’s equation is:

Total production of silver + selling of silver reserves = total consumption of silver + implied net investment

*source: http://www.silverinstitute.org/site/supply-demand/silver-supply/