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The first part of this article introduced the demand for silver; this 2nd part will discuss the tendency of silver supply and reserves.

Mine Production

The total world silver mine production rose from 13,290 metric tons (427.3 million ounces) in 1986 to 24,000 metric tons (771.7 million ounces) in 2012, while the Compound Annual Growth Rate (CAGR) was 2.30%. At this point, the growth rate was greater than the world silver industrial demand growth rate, which was 1.56% in the same period.


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Data: USGS


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Data: USGS

Production of Old Silver Scrap

Production of old silver scrap represented 24.2% of the total supply in 2012. The total world production of old silver scrap rose from 5,810 metric tons (186.8 million ounces) in 2000 to 7,896 metric tons (253.9 million ounces) in 2012, while the CAGR was 2.59%. The increase in the price of silver has made its recovery more profitable.


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Data: The Silver Institute

Net Government Sales

Central Banks have been net sellers of silver during the recent years, but at a decreasing rate. Net government sales represented 10% of the total supply in 2003, but only 0.7% of the total supply in 2012. Central Banks sold 2,759 metric tons (88.7 million ounces) of silver in 2003, but only 230 metric tons (7.4 million ounces) in 2012.

World Proven Silver Reserves

The total world proven silver reserves rose from 280,000 metric tons in 1994 to 540,000 metric tons in 2012, while the CAGR was 3.94%. It means that new discoveries and new mining technologies surpass the quantity of silver that has been mined.


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Supply vs. Demand

The total world silver supply was greater than the total world demand in 2012 by 1,291 metric tons (41.5 million ounces) that was in contrast to the years 2010 and 2011 in which there was a shortage of 1,567 metric tons (50.4 million ounces) in 2010, and 379 metric tons (12.2 million ounces) in 2011.


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Here are some important ETFS for silver which are traded on NYSEArca:

iShares Silver Trust (SLV), ETFS Physical Silver Shares (SIVR) and ProShares Ultra Silver (AGQ). The table below presents the trailing total returns of holding these funds; year to date (July 01), one year, three years and five years. The returns for the three and five years are annualized.

Summary

The growth rate of silver mine production and old silver scrap production was greater than the silver industrial demand, but below the growth rate of the demand for coins and medals and for physical silver ETFs and silver bars. As a result, the price of silver will be influenced mainly by investors' sentiment. Furthermore, the recent drastic decline in the price of silver can regenerate strong demand for silver for industrial purposes and for jewelry, which will support the price of silver.

Since there is a direct correlation between the price of gold and the price of silver, we can expect an increase in the price of silver when the price of gold will rise again.


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Source: Is It Time To Buy Silver? Part 2