Supply and Demand Factors in the Silver Market

On a long term basis, I believe silver is very undervalued. From a supply and demand perspective, silver usage is outpacing new supplies, thus producing a supply deficit that is being currently being made up by silver that is in storage. Once the storage supply is dried up, the silver price will very likely to climb. In addition, as price inflation accelerates, demand for silver as a inflation hedge investment is going to skyrocket, further putting upward pressure on the silver price.

Below are the current supply and demand dynamics in the silver market.

	2012	2013	2014 (est)	Change Y-o-Y
SUPPLY
Mine production	774.7	819.1	835.6	2%
Recycling	222.6	213.0	214.1	1%
Govt. Sales	4.3	6.3	6.3	0%
Producer hedging	-	-	5.0	n/a
Total Supply	1001.6	1038.4	1061.0	2%
DEMAND
Industrial	474.3	492.5	521.6	6%
Jewellery/Silverware	225.2	234.4	242.0	3%
Photography	61.0	58.2	53.4	-8%
Physical Investment	168.8	285.7	273.5	-4%
Dehedging	46.7	32.6	-	n/a
Total Demand	975.8	1103.4	1090.5	-1%
Market Balance	25.8	-65.0	-29.5	-62%
Nominal Silver Price	31.15	23.79	20.00	-16%

Source: Metals Focus

(via MineWeb)