Keith Neumeyer Was Right About $100 Silver, 'Rally Being Driven By Physical Supply Issues'

Key Concepts

• Silver Price Surge: Recent significant increase in silver prices, nearing $100/oz, driven by both investment demand and, crucially, industrial demand.
• Shanghai Silver Price (SHFE): Silver price traded on the Shanghai Futures Exchange, currently exceeding spot prices in other markets, indicating strong Chinese demand.
• Comex & Physical Silver Market Disconnect: Growing disparity between paper silver trading on the Comex and the availability of physical silver, leading to potential supply squeezes.
• Strategic vs. Monetary Metal: Distinction between silver as a strategic/critical mineral (essential for industry) versus its traditional role as a monetary metal like gold.
• Critical Mineral Designation: Recognition of silver as a critical mineral by the US government, potentially impacting investment and supply chain security.
• Supply-Demand Fundamentals: Underlying imbalance between silver supply and demand, particularly driven by industrial applications, as the primary driver of price increases.
• Permitting Challenges: Significant delays and complexities in obtaining permits for new silver mining projects, hindering supply growth.
• Triple Digit Silver: A long-held prediction by Keith Newmier regarding silver reaching $100/oz, now appearing increasingly likely.

Silver Market Analysis & Price Drivers (January 15, 2024)

This discussion between Chris Marcus of Arcada Economics and Keith Newmier of First Majestic Silver centers on the recent and dramatic surge in silver prices, analyzing the underlying causes and potential future trajectory. The conversation took place on January 15th, amidst a period of historic movement in the silver market.

Recent Price Action & Key Figures

The discussion highlights a recent $7 move in silver, reaching $93/oz, with a pullback occurring on the day of the conversation. Notably, the Shanghai silver price (SHFE) was trading at 22470 yuan/kg, equivalent to over $100.30/oz, significantly higher than the spot price of around $89/oz and futures prices. The spread between the Shanghai and New York prices has widened, currently around $11. Over the past week, silver had risen almost $20, following a prior month where it increased from $48 to $72.

Industrial Demand as the Primary Driver

Newmier and Marcus both emphasize that the current price increase is fundamentally driven by physical demand, particularly from industrial buyers, especially in China. This contrasts with speculation or short squeezes, which they believe are insufficient to explain the magnitude of the price movement. Newmier notes incoming calls from physical buyers seeking immediate metal delivery, an unprecedented occurrence in his 23 years of running First Majestic Silver. David Stein of Kuya Silver reported receiving offers from Chinese and Indian buyers at premiums of $8-$10/oz above spot. The concern in India is that China is absorbing so much silver that it's becoming difficult for Indian solar manufacturers to secure supply.

Physical Market Squeeze & Comex Dynamics

The conversation points to a squeeze in the physical silver market. Shanghai inventories are at 15-year lows, London is experiencing low metal availability, and Comex inventories are declining. This is creating pressure on the paper derivative market, as short positions attempt to cover with limited physical metal available. Newmier observes unusual activity, such as the rolling forward of March contracts, suggesting difficulty in fulfilling obligations. The widening spread between Shanghai and Comex prices is seen as a symptom of this imbalance.

Strategic Metal Designation & Government Involvement

Marcus and Newmier discuss the significance of silver being designated a “critical mineral” by the US government. Newmier details First Majestic’s involvement in lobbying for this designation, believing it will attract institutional investment. They also touch upon government discussions involving Australia, Canada, Mexico, France, and India regarding securing critical mineral supply chains. The possibility of government intervention, including price floors or direct investment in mining companies, is raised, though Newmier expresses a preference for streamlined permitting processes over direct financial support. He notes that Canada has not yet acted on designating silver as a critical mineral.

Exploration & Mining Potential

Newmier highlights First Majestic’s extensive exploration programs, including 250,000 meters of drilling in 2024 across their properties (Santa Elena, Gatos, and San Dimas). He emphasizes the significant untapped potential at Gatos Silver, where the current mine life is based on a small fraction of the total property area. He also mentions progress on re-evaluating the Jarret Canyon mine, which was previously put on care and maintenance due to high costs and poor management, with a potential update expected in the next 2-3 months.

Key Arguments & Perspectives

• Newmier’s Long-Term Bullish View: Newmier, who coined the phrase "triple-digit silver" in 2012, remains highly optimistic about the long-term prospects for silver, predicting a 10-year bull market. He attributes this to the fundamental supply-demand imbalance and the increasing recognition of silver as a strategic metal.
• Distinction Between Gold & Silver: Newmier stresses that silver is not gold. He views silver as a critical industrial metal, while gold remains primarily a monetary asset.
• Importance of Permitting Reform: Both speakers agree that streamlining the permitting process for new mines is crucial to addressing the supply shortage.
• China’s Dominance: The conversation underscores China’s growing influence in the silver market, both as a consumer and a potential driver of price increases.

Notable Quotes

• Keith Newmier: “Triple digits is on its way.” (Regarding the future silver price)
• Keith Newmier: “Silver is not gold… silver is a strategic metal, a critical mineral.” (Highlighting the fundamental difference between the two metals)
• Chris Marcus: “This doesn’t feel like just speculation on the Comex. This doesn’t feel like just a short squeeze because a short squeeze doesn’t double the price of silver in about six or seven weeks.” (Expressing skepticism about purely speculative explanations for the price surge)
• Keith Newmier: “We should have shut that mine down on the first day we bought it… it was just so poorly run and just so poorly mismanaged.” (Referring to the Jarret Canyon mine)

Technical Terms & Concepts

• Spot Price: The current market price for immediate delivery of a commodity.
• Futures Price: The price agreed upon today for delivery of a commodity at a specified future date.
• SHFE (Shanghai Futures Exchange): A Chinese futures exchange where silver is traded.
• Comex: A division of the New York Mercantile Exchange (NYMEX) where silver futures and options are traded.
• All-in Sustaining Cost (AISC): A metric used in the mining industry to calculate the total cost of producing an ounce of silver, including operating costs, capital expenditures, and exploration costs.
• Critical Minerals: Minerals deemed essential for economic and national security, often with limited supply sources.
• Concentrate: A partially refined ore containing a high concentration of valuable metals.
• Lan Curve: A cost curve in mining that illustrates the increasing costs associated with bringing new, lower-grade deposits into production.

Logical Connections

The conversation flows logically from observing the recent price surge to analyzing the underlying drivers, exploring the role of China, discussing government policies, and finally, examining the implications for mining companies and investors. The discussion builds upon each point, connecting the physical market dynamics to the broader geopolitical and economic context.

Data & Statistics

• Shanghai Silver Price: 22470 yuan/kg ($100.30/oz as of the conversation)
• Comex Silver Price: Approximately $89/oz
• Spread between Shanghai & Comex: $11
• Shanghai Inventories: At 15-year lows
• Silver Supply Deficit: Approximately 650 million ounces in the last four to five years.
• First Majestic’s Q4 Production: Record quarter, with increased cash reserves.
• First Majestic’s Drilling Program: 250,000 meters of drilling in 2024.

Synthesis/Conclusion

The conversation paints a compelling picture of a silver market undergoing a fundamental shift. The price surge is not simply speculative but is rooted in strong industrial demand, particularly from China, and a growing supply-demand imbalance. The designation of silver as a critical mineral and potential government intervention could further accelerate this trend. While challenges remain, particularly regarding permitting and the availability of physical metal, the outlook for silver appears increasingly bullish, validating Keith Newmier’s long-held prediction of triple-digit prices. Investors and industry participants should closely monitor developments in China, government policies, and mining company exploration efforts to capitalize on this evolving market dynamic.