Shortage Of Silver INCREASED PRICES SEEM INEVITABLE

Press, Volume C, Issue 29599, 23 August 1961, Page 14

Shortage Of Silver INCREASED PRICES SEEM INEVITABLE

(By -LYNCEUS" ot th* “Sconomirt’')

(From the "Econonrirt" InttUtgenct Unit)

London, August 9.—Gold normally receives all the attention in the world bullion markets; but now it is silver that is keeping the dealers busy. There has been a sudden increase in speculative buying in the belief that the price—already at its peak for the year-—will soon rise dramatically. The reason is that world demand for silver is currently ahead of supply, and the difference is being met almost entirely from a stockpile held by the United States Treasury. All the evidence suggests that the stock is rapidly dwindling. The background is the relatively stable level of silver production over the last live years. The free world’s output of mined Silver has been almost stable at about 200 million ounces. The four biggest producers are Mexico, the United States, Canada, and Peru, although there is also smaller output from a number of other countries including Bolivia, Australia, and Burma. Silver is produced as a by-product of other metals, chiefly lead and zinc, and with demand for these metals fairly static recently. there has been no incentive to make the increases in production necessary to provide more silver.

Rising Consumption Other sources of supply are mainly Government stocks geared to national coinage requirements. These, plus various demonetisation programmes, go much of the way to providing the silver needed for new coinage; but this still leaves an over-all shortage. World consumption of silver is rising. Two-thirds of demand is for industrial uses, of which the most important single use is in photographic equipment. But there is also a growing demand for the manufacture of such things as solders, brazing alloys, electrical contacts, and ceramics. These requirements, which tend to fluctuate in line with total industrial production, set a record last year of some 225 million ounces for the free world.

With United States economic recovery under way, this total should be exceeded during the current year. Coinage has taken about 80 or 90 million ounces a year recently. The United States is a large producer of coinage and France has now embarked on a new silver coinage programme that is likely to continue for some years. Austria, Italy, Portugal. and Greece are also minting on a small scale; and it is unlikely that countries with silver in circulation will reverse their policies. Though no full statistics are available, it appears that demand for coinage was about 35 million ounces in excess of supply last year. This made the total shortfall of free-world supplies about 60 million ounces less than total consumption. Fall in U.S. Stocks

This, at any rate, is the Implication in the foil in free Mocks of the United States Treasury last year. At the beginning of 1960 they were 180 million ounces; and at the end of the year the total was 120 million ounces. By the end of June this year they had fallen to less than 80 million ounces, or at the current rate of decline to roughly one year’s supplies Under an act of 1946 the United States Treasury is allowed to sell these “free reserves" to domestic industry at a minimum price equivalent to 78d an ounce in London. So long as the United States Treasury is a seller at this figure, the world price is bound to be about 78d or 80d an ounce.

The United States Treasury has now three choices open to it. The first two are constantly advocated by the American mining lobbies. The Treasury can stop selling before its stocks run out; it can raise its selling price; or it can go on selling until stocks are exhausted (as the consumer lobbies hope). Although if present trends continue, stocks should run out within a year, it is just possible that the time might be extended if two countries that owe America silver under a lend-lease agreement —Saudi Arabia and Pakistan —decided to fulfil their obligations this year. If they both do so. the United States Treasury stocks would last another four months. Restraining Factors The conclusion, then, is that the price of silver is almost certain to rise. The size of the increase is quite another matter. A theoretical upper limit is the equivalent of about 113 d an ounce; at this price it would pay the United States Treasury to melt down the coinage. But dealers in London say they think a more likely rise would be about 10 per cent, at first, to the equivalent of about 87d an ounce. There are three factors to restrain a sharper rise. Sales of silver by China in world markets have been increasing recently, and it is possible that a larger amount of the enftrmous stocks believed to be held there may be released. Speculators who have bought silver in hopes of a price rise will begin to sell if end when the rise occurs; and it is possible that at a slightly higher world price, one or two mining companies might consider working mines with a high silver content more productively.

But broadly speaking, this is an example of a world commodity situation—albeit in a rather superior product —where the genuine market price is being artificially adjusted by a stockpile manager. As numerous other commodity situations have shown —the most notable and drastic being tin—the absence of a true price indicator can lead to serious miscalculations and difficulties. Stock management may be of great advantage to both producer and consumer in smoothing out short-term fluctuations, but it diverts attention from the more urgent long-term problem of adjusting supply to demand. For the silver industry, the proper question to be raised now is not “How long can the United States Treasury last?” but “What is going to be the position of silver in, say, 1965?” Meanwhile laymen can take satisfaction, as they handle their silver coinage, that soon its value may be a shade nearer the figure imprinted on it.