Silver supply deficit in 2023

The World Silver Survey 2023 predicts another year of silver supply deficit. Surprisingly, the report predicts a flat silver price compared to last year (on average). The fact that this report is not in sync with the market’s or our own silver price forecast for 2023 is not our concern, we stick to our bullish silver forecast. The bigger point, however, is that the silver market is going through a silver supply deficit for the second year in a row. Any normal market with a supply deficit comes with an appreciation of the price (more demand than supply results in a higher price), not so in silver apparently. What to make of this anomaly?

First of all, we have pointed out that the Silver Institute, editor of the World Silver Survey 2023, only looks at fundamental data. The second point is that the Silver Institute tends to take a very conservative approach, it also likes to stick to the consensus view.

From our perspective, we are focused on price. Our observation of the silver charts has a very different message from the World Silver Survey 2023. We are very clear on this: this giant bull flag on the chart will be the fuel for the big explosion in 2023.

Note that the great silver eruption is already in progress, after the secular eruption was cleared. There is still plenty of resistance to be cleared, around 28 USD in spot silver. In other words, a secular eruption is a multi-step process. We believe that it is only a matter of time before the final outbreak occurs.

Once USD 28 is cleared, we could see values close to USD 38 in no time. That said, let’s turn our attention to the World Silver Survey 2023. A summary is provided below:

 2022 saw a large deficit in the silver market, but institutional investors remained indifferent or bearish towards the metal. According to the report, this should not be surprising, as factors that are positive for institutional investment are negative for key demand segments. Rising and persistent inflation drove the physical demand for silver, with private investors trying to protect their wealth. However, inflation drove institutional investors away from silver, as it drove policy rate hikes and market expectations of a continued hawkish stance, leading to higher US interest rates.

 The downward pressure on silver prices from institutional activity further increased physical demand, especially in India, where low prices encouraged the entire supply chain to replenish their stocks. Industrial manufacturing, largely linked to the robust solar energy industry, also contributed to demand growth. However, a lack of supply gains resulted in a marginal decline in mining production while recovery barely rose, culminating in a likely record deficit of 237.7 Moz.

 Despite the recent boom in investor demand and the rally, analysts predict that 2023 will see much of a repeat of last year. Another large deficit is forecast for the year, and institutional investments are expected to run out. The market’s prevailing consensus that the Fed will be forced to cut rates in the second half of the year will prove to be inaccurate, leading silver to fall to a low of $18.00 before the end of the year, culminating in a full-year average of $21.30, down 2%.

 Overall, the analysis suggests that although the silver market was in a large deficit in 2022, physical demand was. The lack of supply-side gains resulted in a record deficit. However, institutional research investors remained bearish on the metal. Factors such as rising inflation and the Fed’s hawkish stance negatively affected institutional investment, while the increase note predicts a repeat of last year in 2023, with another deficit and institutional investment losing momentum, leading to a fall in silver prices.

Again, the above points are not our view, they are our summary of the report.
The table below shows the information on which the report is based.

So, here we have a second year of a supply deficit and the conclusion, from a leading silver institution, that this is normal and expected.

We will select a specific paragraph that does this. Again, this is not our point of view, we copied this paragraph from the report:

“Of course, silver prices rarely start from market fundamentals and are instead largely driven by the activity of professional investors; 2022 was no exception. For reasons mentioned earlier and discussed in detail in Chapter 3, institutional investors were not keen on silver for much of the year. This explains why the silver price was generally under pressure from mid-April to mid-October and also why its average was 14% lower y/y.”

The Silver Institute emphasizes the point that it is normal (“of course” and “silver prices are rarely based on fundamentals”) that a supply deficit does not have an effect on the price.

Read this again a few times.

We have expertise in reading charts, not in analyzing every detail of the silver market. This is why we prefer to let a real expert comment on what the Silver Institute wrote there. Ted Butler, by far the most competent analyst and expert, in our humble opinion, since 4 decades, wrote some thoughts to his premium members. We have permission to reprint the following (recommended reading: Butler Research):

The World Silver Survey 2023 goes on to try to explain that despite the axiom of the law of supply and demand that more demand than supply (by a wide margin) must result in higher prices, silver prices were on average lower in 2022 than the previous year. The Silver Institute’s ingenious explanation for something that should be impossible under the free law of supply and demand, namely that prices moved lower when demand is greater than supply was due to “institutional activity” in silver. Isn’t that just amazing? I guess “institutional activity” sounds much more dignified and accurate than blatant price manipulation.

In fact, the only possible explanation for there being much more demand than supply and prices falling (as the Silver Institute reports), is if something is wrong with the price. “Monkeying with prices” is a bland term for what those awful COMEX commercials do for a living. I assume that price manipulation is a term that should be avoided at all costs in these reports, even though all the data in the study points to that inevitable conclusion.

The reason the Silver Institute reports a gaping deficit in silver and flat production growth for more than a decade is precisely because prices have been artificially suppressed and manipulated during this time. Nothing but price manipulation is capable of the specific set of facts stated in this investigation. It is not possible to have more demand than supply, at a record level, and for prices not to explode higher.

In fact, there can only be one explanation for an unchanged price trend when supply exceeds demand: anomalies. These anomalies can last for a long time, but endlessly and forever. Sooner or later, the price will react to the market reality of a supply deficit.

This is what Ted Butler concludes about the future of the silver price:

The good news for silver investors is that the artificially lowered prices have been around for so long and silver stocks have been so thoroughly depleted that silver manipulation looks to be breathing its last gasps. Any day, week or month is all that stands between where we are in silver prices currently and where we will be looking down in the very near future.

This is what we conclude about the future of the silver price: the chart is a pressure cooker that will start exploding by 2023.

We are convinced that silver starts a raging bull market. While we are not experts in supply/demand data, we believe that the market imbalance provides further evidence that an estimate of the price, to align with market reality, is close. Regardless, charts don’t lie, the silver chart is explosive, period.

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