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Silver supply deficit fails to boost price, Silver Institute study finds

by Greg Klein | April 16, 2018

Notwithstanding a decline in production, silver fell slightly in price and lost further ground to gold last year, according to the World Silver Survey 2018. Prepared by Thomson Reuters for the Silver Institute, the 28th annual study reported total supply of 991.6 million ounces in 2017, compared with physical demand of 1,017.6 million ounces. The 26-million-ounce deficit grew to 35.2 million ounces when ETP and exchange inventory increases were factored in.

Silver supply deficit fails to boost price, Silver Institute study finds

But at $17.05, the average price represented a 0.5% year-on-year drop. The metal ended the year at $16.87, having traded between $15.22 and $18.56 during 2017.

While recycling provided most of the remaining supply, the year’s global mine production came to 852.1 million ounces. That represented a 4.1% decline attributed largely to “supply disruptions in the Americas,” most notably Guatemala, where Tahoe Resources TSX:THO had its Escobal mining licence suspended, and the U.S., where a strike beginning in March 2017 forced Hecla Mining NYSE:HL to slash production at its Lucky Friday mine. Australia and Argentina also showed considerable declines.

Canada, ranking 14th for silver production, extracted 12.7 million ounces last year, compared with 13 million in 2016.

Meanwhile, gold has been leaving silver behind. Year-end prices for 2016 showed the yellow stuff selling for 71.4 times the price of its poorer cousin. The 2017 gold:silver ratio averaged 73.9:1, hitting 77:1 by year-end, “a high level that perhaps suggests that the market is trying to tell us something,” Thomson Reuters stated. “We suspect the high gold:silver ratio indicated that the market had been expecting another major crisis could be looming, or at the least that it was about time for equities correction, and therefore investors had been accumulating physical gold in the market.”

Another precious metal also paled in comparison with gold, which ended 2017 at an historical high of 1.4 times the price of platinum.

But investors looking at silver and platinum’s catch-up potential should consider “gold’s role as a safe haven and that some smart money has been hedging against geopolitical risks and potential correction in equities,” the study added.

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