Above Ground Silver -vs- Market Supply: Understanding the Real Price Driver

Key Concepts

• Above-Ground Stocks: The total historical accumulation of silver produced over time.
• Tradable Supply (The Float): The portion of silver currently available for market exchange (newly mined, recycled, and bullion inventories).
• Price Sensitivity: The degree to which the price of silver reacts to changes in supply or demand.
• Industrial Consumption: The process by which silver is used in manufacturing (e.g., electronics, solar panels) and effectively removed from the bullion market.
• Market Liquidity: The ease with which silver can be bought or sold without causing drastic price fluctuations.

1. Main Topics and Key Points

David Morgan discusses a report from the Silver Institute titled Price Sensitivity of Above-Ground Silver Stocks. The central finding is that there is no correlation between the total volume of above-ground silver stocks and the market price of silver.

• The "Immobile" Nature of Silver: Most historical silver is either lost (landfills, ocean) or embedded in industrial products, jewelry, and artifacts. It is physically present but economically unavailable to the market.
• Bullion vs. Fabricated Products: Bullion stocks are more mobile and sensitive to investment demand, whereas fabricated products (jewelry, silverware) show limited price sensitivity.
• The "Float" Theory: Price is determined by the "float"—the small, liquid portion of silver that can realistically enter the market—rather than the theoretical total of all silver ever mined.

2. Important Examples and Real-World Applications

• The Housing Market Analogy: Morgan compares the silver market to the housing market. The price of a home is not determined by every house in the country, but by the limited number of homes currently listed for sale (the "float").
• Industrial Consumption: Unlike gold, which is largely stored as bullion and can be returned to the market, silver is frequently consumed in industrial applications (e.g., solar panels, electronics). Once used, it is often uneconomical to recover, effectively removing it from the tradable supply.

3. Methodologies and Frameworks

• Supply/Demand Balance: The market price is driven by the interaction between:
  • Supply: Newly mined silver, recycled scrap, and bullion inventories (COMEX, LBMA, ETFs).
  • Demand: Industrial consumption, investment demand, and fabrication demand.
• Data Analysis: Morgan references COMEX inventory data dating back to 2012 to illustrate that current inventory levels are actually above average, despite common misconceptions about scarcity.

4. Key Arguments and Perspectives

• Supply/Demand Economics Remain Valid: Morgan argues that the lack of correlation between total stocks and price does not invalidate supply/demand economics. Instead, it highlights that the market is much smaller and more liquid than headline numbers suggest.
• The "Scarcity" Argument: Morgan posits that silver is not scarce because it wasn't mined, but because it was consumed. Because the available supply is so small, even minor shifts in demand can cause rapid price movements.

5. Notable Quotes

• "The total historic stock of silver is not the same thing as a silver that is actually available to the market."
• "Silver isn't scarce because it wasn't mined. It's scarce because it was used."
• "What matters for price is not the theoretical stock of metal sitting somewhere in the world. What matters is the tradable supply."

6. Data and Research Findings

• Historical Production: Humanity has produced roughly 60 to 70 billion ounces of silver throughout history, but a vast majority is lost or inaccessible.
• Market Deficits: Morgan notes that the silver industry experienced a significant deficit from 1990 to 2005, where silver was depleted at a rapid rate.
• Price Sensitivity: The Silver Institute research indicates that while bullion stocks are somewhat correlated with price during investment cycles, the vast majority of total above-ground silver remains immobile.

7. Synthesis and Conclusion

The primary takeaway is that investors should ignore "total above-ground stock" figures when analyzing silver prices, as these numbers include vast amounts of metal that will never reach the market. Instead, the price is dictated by the tradable float. Because silver is frequently consumed in industrial processes, the actual market is much smaller than historical production figures imply. This structural reality makes the silver market highly susceptible to rapid price appreciation when investment or industrial demand increases, as the "ready-to-trade" supply is significantly tighter than the total historical supply suggests.