Silver Breaks $71 As Market Stress intensifies

Silver Market Analysis & "Silver Rising" Book Discussion - December 23rd, 2023

Key Concepts:

• Silver Price Surge: Rapid increase in silver price, exceeding $71/oz, driven by market stress and supply/demand imbalances.
• Physical Tightness: Scarcity of physical silver available in the market, leading to delivery issues and backwardation in the London OTC market.
• Strategic Critical Mineral Designation: Silver’s recent designation as a critical mineral by the USGS and its implications for demand.
• Solar Panel Demand: Significant and growing demand for silver in solar panel manufacturing, potentially driving prices higher.
• AI & Silver Connection: The increasing demand for silver due to its essential role in AI-related technologies (memory chips, data centers, heat/electricity conduction).
• Silver Supply Dynamics: Silver is largely a byproduct of mining other metals (copper, lead, gold, zinc), making its supply less responsive to price increases.
• Section 232 Report: US Commerce Department probe into silver imports and potential tariffs, impacting supply and demand.
• "Silver Rising" Book: Shemislaw Redsky’s book detailing the factors driving silver’s price increase and providing investment guidance.

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I. Current Market Conditions & Price Movement

The discussion centers around the unprecedented surge in the silver price, reaching over $71 per ounce on December 23rd, 2023. This represents a 50% increase in price since November 20th, and a doubling of the price since August 18th (from $37.24 to potentially $74.75). Chris Marcus highlights the unusual nature of this price movement, noting it’s not solely driven by typical market forces but also by underlying stress and potential shortages. The conversation acknowledges signs of market stress beyond just the price increase, including lease rate spikes and delivery issues.

II. Shemislaw Redsky’s Perspective & "Silver Rising"

Shemislaw Redsky, author of "Silver Rising," shares his insights on the current market. He initially anticipated a silver price increase next year, but the surge occurred sooner than expected. He notes that several forecasts in his book have already materialized, including silver’s designation as a critical mineral by the USGS. Redsky emphasizes the physical tightness in the market, with companies racing to secure physical silver ownership. He attributes this to a combination of factors, including increasing demand and constrained supply. The book, available at [arcadia economics.s2026.com](arcadia economics.s2026.com) for $9 (discounted from $19), aims to comprehensively analyze the catalysts driving silver’s price increase, offering investment strategies and risk mitigation advice. Chris Marcus contributed to the book, providing responses to multiple questions.

III. Supply & Demand Fundamentals

A key point discussed is the unique supply dynamic of silver. Unlike gold, silver is primarily a byproduct of mining other metals (copper, lead, gold, zinc). This means silver supply is more dependent on the prices of these other commodities and energy costs than on the price of silver itself. Mining silver is energy intensive, costing between $0.50 and $1.66 per ounce for final processing, and up to half the total cost when considering transportation and material production.

The discussion highlights two major demand drivers:

• Solar Panel Industry: The International Energy Agency projects over 4,000 gigawatts of new solar capacity by 2030, requiring a substantial amount of silver. Estimates range from 12 to 22 tons of silver per gigawatt, potentially creating a demand of 250-450 million ounces annually – representing 30-over 100% of current silver production. This demand is largely driven by government mandates, making it less susceptible to economic downturns.
• Artificial Intelligence (AI): Silver is crucial for AI-related technologies, including memory chips, data center infrastructure, and heat/electricity conduction. The AI race is driving both demand for silver and increasing energy prices, further impacting mining costs.

IV. Market Stress & Physical Availability

The conversation details several indicators of stress in the physical silver market:

• London Market Freeze: A 1,000-ton order from India in October triggered a freeze in the London silver market and a spike in lease rates.
• LBMA Delivery Issues: The LBMA was unable to fulfill a 1,000-ton delivery request despite reporting a stockpile of 844 million ounces.
• Lease Rate Spikes: Lease rates remain elevated, indicating difficulty in sourcing physical silver.
• SOV ETF Inflows: Large inflows into the SOV ETF raise questions about the actual availability of physical silver backing the fund.
• Government Intervention: China restricting silver exports and the US government taking stakes in companies suggest increased strategic interest in securing silver supplies.

Redsky suggests that the issues experienced in October were temporarily resolved through logistical maneuvers (moving silver between vaults), but the underlying problem of physical scarcity remains. He believes the inevitable outcome is a repricing of silver into triple digits.

V. Geopolitical & Regulatory Factors

The discussion touches on the potential impact of geopolitical tensions and government policies:

• Section 232 Report: The US Commerce Department’s Section 232 report on silver imports could lead to tariffs, potentially impacting supply. However, Redsky believes the US government will ultimately seek to secure more silver for strategic purposes, potentially offsetting any restrictive measures.
• War & AI: The discussion posits that the implications of the AI race for silver demand may be as significant as geopolitical tensions.
• Permitting Process: The lengthy permitting process for new silver mines in the US (almost 29 years, second longest in the world) hinders supply growth.

VI. Long-Term Outlook & Investment Implications

Redsky predicts that the current market conditions are likely to persist, with continued physical tightness and potential for further price increases. He believes that even an economic correction may not significantly dampen demand, particularly from the solar panel industry. He emphasizes that the unique supply dynamics of silver make it different from other commodities, where price increases typically incentivize increased production. He suggests that the current situation represents a long-term opportunity for silver investors.

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Notable Quotes:

• “Silver is used in many ways in case of well connected with the AI revolution…Silver is the top conductor of heat and electricity and there’s no substitute for the top.” – Shemislaw Redsky
• “The bottom line will be that the Uncle Sam wants to uh get more silver…to manufacture weapons, high-tech technology to facilitate AI development.” – Shemislaw Redsky
• “It’s breathtaking actually to be witnessing that in real time and uh after having dedicated so many months to to research like arguing that this is going to happen eventually but then to see it all happen right in front of us right now.” – Shemislaw Redsky
• “It’s not getting better despite the whatever happens temporarily. It’s still going to we’re still likely to get another uh short squeeze.” – Shemislaw Redsky

Conclusion:

The discussion paints a picture of a silver market experiencing unprecedented stress and a rapidly increasing price. Driven by a unique combination of factors – including growing demand from the solar and AI industries, constrained supply, geopolitical tensions, and potential government intervention – the market is exhibiting signs of significant physical tightness. Shemislaw Redsky’s book, "Silver Rising," provides a comprehensive analysis of these factors and offers insights for investors navigating this evolving landscape. The overall takeaway is that the current situation is likely to persist, with the potential for further price appreciation and continued challenges in securing physical silver.