silver, the forgotten metal

market vibes

This is the 3rd weekly deep dive into precious metals following “Gold Rush ‘24”, focusing on silver. It’s 2000 words or about a 10 minute read.

“Poor George. He can’t help it. He was born with a silver foot in his mouth.” Texas governor Ann Richards, zinging candidate for President GHW Bush at the Democratic convention keynote speech in 1988

The English Shilling has one of the longest histories among British coinage. It was first introduced during the reign of Henry VII in 1504 with a “hammered” (handmade) purity of 92.5% silver and a weight per coin of 1.5 grams. In 1816, following the passage of “the Coinage Act”, a shilling was composed of a statutory 92.5% silver and 7.5% copper. Its weight was increased to 4.88 grams. The sixpence, Half Crown and Crown were introduced in1551. Specific circulation data is limited to specific dates and denominations, but general estimates concur many hundreds of millions if not billions of English silver coins have been minted in the past 5 centuries. Perhaps fewer than 5% exist today.  

The silver Institute estimates, and it is commonly agreed, that about 75% of all newly mined silver comes from incidental production as a byproduct of copper, gold, lead and zinc in roughly these percentages: lead and zinc= 40%, gold =15 to 20%, and copper = 20 to 30%. But the mining sector is in constant flux. Prices change. Mines age and die. New mines are developed. There is very little reporting on silver by product sales per se and just because a mine’s primary enterprise is zinc, or gold doesn’t mean it will produce a predictable quantity of silver.  

For instance, the Red Dog mine in Alaska is reputedly the world’s largest zinc mine but the Red Dog only produced 7 mm toz silver in 2023. Hindustan Zinc, a smaller zinc mining company produced 23 mm toz in 2023. BHP’s Escondida is the largest copper mine in the world and its output of silver in 2023 was < 5 mm toz., or a fifth of Hindustan’s.  

Statista’s latest estimates of total sources of silver below.

There are circa 377 zinc mines, 327 lead mines, 709 copper mines,1050 gold mines operating globally today and most, if not all of them refer to silver as a “throw-away” metal. Therefore, if the price of silver were to double or triple the price would probably have very little strategic impact on a mine’s primary mission. Hindustan Zinc’s gross revenue was $4.5 billion in 2023 to which silver contributed 9%. Furthermore, no one really knows how much silver is mined or sold incidentally, and in my opinion, very few people care. Silver is a word more than a metal in October 2024, and a dubious precious one at that. Using an ounce of gold as a benchmark for value the ratio between the two metals indicates a dramatic devaluation of silver.

For thousands of years going back to Biblical times the ratio of gold to silver was 12 ounces of silver to 1 ounce of gold. In India it was as low as 10:1 for early British trade but 12:1 soon became the modern standard. In Ancient China some historians put the ratio as low as 8:1 favoring silver. In the middle of the 18th century the ratio fell to 15:1 where it remained until the Comstock lode was discovered in Nevada in 1859 and hence it fluctuated between 15:1 and 20:1 well into the middle of the twentieth century. The ratio has been averaging 70 toz silver to 1 ounce of gold for 40 years with extremes as low as 15:1 in 1980 and >120:1 in 2020. The ratio settled at 85 ounces of silver to 1 ounce of gold on Friday.

Are silver prices too low? I think so.

Let’s go back to the beginning of time and try to figure out why.