Crisis Investing
Dear Reader,
Silver is setting up for explosive gains.
I know, it's a bold statement to make. The metal has already had a pretty good run this year. But we believe it's just the beginning of a historic bull market.
There’s a lot of ground to cover here so let’s just jump right in....
Dwindling Stockpiles
In a recent essay, I talked about the silver exodus from the West to the East, how it's been picking up speed and the reasons behind.
As I explained, silver has been trading at fat premiums on the Shanghai Gold Exchange (SGE) creating an arbitrage opportunity that speculators can't ignore. And as they cash in on this price difference, Western vaults have been getting depleted.
But there's another reason for the dip in silver stockpiles.
You see, the silver market is now in its fourth straight year of shortage. In fact, this year’s shortage is expected to be the second biggest supply deficit on record.
And what's causing those shortages? Simple... the silver market is out of whack.
People don’t realize it, but we mine silver in only a handful of countries. And many of them, such as Mexico, Peru, Argentina, and Chile, aren’t very stable... Some of them haven’t been stable for decades.
This makes silver supply inherently shaky.
And the COVID crisis didn’t help. In fact, silver mining was hit particularly hard.
In Mexico, the world’s largest silver producer, all mines were shut down in the spring of 2020. Major companies like Fresnillo (FNLPF) and Peñoles (PE&OLES.MX) were forced to halt operations causing big production losses.
Same thing happened in Peru, with major mines like Buenaventura (BVN) and Pan American Silver (PAAS) suspending operations.
Globally, 101 silver projects were shut down at some point during that year. The world’s silver mine production fell by 6%.
Fast forward to 2024… the global silver mining industry is still grappling with the aftereffects of the pandemic. Yes, production levels have improved compared to the peak disruption period. But they never returned to pre-pandemic levels.
If you're wondering why that is, the best way I can sum up the many factors behind this is with two words: investment hesitation.
The lockdowns, suspension of “non-essential activities”, social distancing measures, supply chain bottlenecks — all these things that governments worldwide inflicted on their populations and economies in their misguided battle against the spread of a flu-like virus — made people hesitant about making substantial investments needed to build new mines.
Just think about it… Why would anyone invest millions in getting a mine from discovery to production, only to face indefinite shutdowns at the government’s whim?
This isn't something the silver market can bounce back from overnight. Add to that the fact that these supply issues are happening alongside historically high demand, and that’s your reason for the shortages.
Now, you have to understand that these shortages add up gradually. It's not like one year of deficit suddenly sends the metal's price through the roof. They build up over time. But with the world needing more silver each year than mines can supply — again, we're now in the fourth year of shortages — the squeeze is already happening. This suggests that it’s only a matter of time before silver takes off in earnest (which is why we also have a new silver pick for you to profit from this month).