5 CHARTS: The Real Story Behind Silver

GFMS SILVER Coin ChartAs the world continues down the road of self-destruction via its highly leveraged paper financial markets, there’s a much more fascinating story worth looking at. 
Hidden from the majority of the public and misunderstood by the so-called professional metal analysts, is the Real Story Behind Silver.

buff sale
From the SRSRocco Report:

The real problem today as I have mentioned several times before, there’s only a few good analysts out there…. and a whole bunch of losers.  Unfortunately, the investing public has no idea that it is being misled due to this increasingly lousy shortsighted analysis.

Thomson Reuters GFMS put out a new Silver Update last month that was already covered by BrotherJohnF’s website last week (which many have already seen).  However, I took some time to closely examine the presentation and found some interesting charts worth explaining.

The first chart below has to do with the change in Silver Bullion Coin Sales.  According the GFMS, they show an approximate 43 million oz in silver coins sold in North America in the first 9 months of the year.


They don’t give you the exact figures, so we have to just eyeball the red bars and estimate what the amount would be by the scale on the left.  I came up with the following:

2013 Q1 = 14 million oz

2013 Q2 = 15 million oz

2013 Q3 = 14 million oz

Total = 43 million oz

So, GFMS figures that 43 million oz of North American Silver Bullion Coins have been sold in the Q1-Q3 period.  Now, according to my figures obtained from the U.S. & Royal Canadian Mint, total sales for the Silver Eagle & Maples were 55.7 million oz during this time period.  I don’t know why there is a discrepancy here, but it turns out to nearly 13 million less than the figures put out by the two Official North American Mints.

Furthermore, this does not include the “Other Commemorative” silver coins that these two mints also produce and sell.  This can be seen more accurately in the next chart:

GFMS World Fabrication Demand COINS

Here GFMS is forecasting an approximate 17.5 million oz increase in fabrication of silver coins in 2013 over 2012.  If we estimate that there will be 43 million oz of Silver Eagles and 25 million oz of Silver Maples sold in the entire year, the total would be 67 million oz in 2013.

Now, if we compare this to the total Silver Maples & Eagles sold in 2012…. it was 52 million.  So, the estimated change in sales from just these two North American coins will be about 15 million oz.  In addition, this does not include the gain from the other Official Mints as well as misc. silver coins that are produced and sold by the U.S. & Royal Canadian Mint.

As stated in the chart above, the North American mints produced and sold nearly 6 million oz of these misc silver bullion coins in 2012.  I believe the change in Silver Bullion coins in 2013 over 2012 will be more like 25-30 million oz.

I tried to contact Andrew Leyland, the Thomson Reuters GFMS analyst who wrote the report, but I was told that they do not give out contact information of their analysts.  Instead, one of their associates asked if they could assist me, so I sent a reply that hopefully will be forwarded to Mr. Leyland.  If I get a response about these dependencies, I will update it in this article.

This next chart says it all.  If Jeff Christian can’t see the Fed & Central Bank precious metal manipulation at work, the figures below certainly paint a clear picture:

GFMS Base Metal & Gold-Silver Price 2013

Since the beginning of the year, silver has lost 29% of its value while gold is down 22%.  Of course the base metals are behaving much better as copper is only down 12%, lead down 10% and zinc a modest 9%.  The data for this chart was calculated using prices before Nov 12th.

If we do a quick update including the Central Bank’s phat finger during Monday’s precious metals’ raid, Gold is now down 27% and silver, a whopping 38%.  Interestingly, copper is now only down 13% which makes the year to date difference between copper and silver nearly 3 times the rate.

Of course there’s no manipulation taking place  …..”nothing to see here so let’s just move on”, as Jeff Christian would say.

This next chart has to be one of my favorites.  I still receive emails from readers and investors who believe that it cost $9 to produce an ounce of silver.  For some strange reason, the industry continues to promote the insane methodology of “CASH COSTS.”

GFMS Cash Cost Chart

Mr. Leyland is trying to show the difference between the Top Primary Silver cash cost and silver price today is still pretty healthy at $17 an ounce, even though it fell from a record $27 in 2011.  If we take this data at face value, the silver miners are making a huge $17 cash cost profit…. or are they?

I would like to remind the reader that “Cash Costs” are not a GAAP – Generally Accepted Accounting Principle.  Basically, cash costs are figured by subtracting the company’s by-product metal from its production costs.  So, the higher percentage of by-product revenue a company has, the lower the cash cost.  So what?

For example, Hecla Mining recorded a $7.40 cash cost per ounce in Q3 2013 from their Lucky Friday and Greens Creek mines, but at the same time suffered an $8.4 million net income loss during the period.  Again, cash costs do not determine the profitability of a mining company.

Hopefully at some point in time, the industry can step away from focusing on this totally meaningless accounting metric and throw it away in the trash bin where it belongs.

The last chart puts into perspective the totally out-of-whack market of silver investment.  Here we can see that total global silver investment is forecasted to fall to a little more than $6 billion in 2013 down from $8 billion in 2012:

GFMS Global Silver Investment 2013

The reason why the Silver Market is so small, is because the Fed & Central Banks want it that way.  $6 billion dollars invested in the silver market in 2013 is $6 billion too much for the monetary authorities.

This is apparent if we go back in time and read what President Lyndon Johnson said about silver when he signed the “Coinage Act of 1965″ — the act that removed silver from U.S. coins:

Now, all of you know these changes are necessary for a very simple reason–silver is a scarce material. Our uses of silver are growing as our population and our economy grows. The hard fact is that silver consumption is now more than double new silver production each year. So, in the face of this worldwide shortage of silver, and our rapidly growing need for coins, the only really prudent course was to reduce our dependence upon silver for making our coins.

If anybody has any idea of hoarding our silver coins, let me say this. Treasury has a lot of silver on hand, and it can be, and it will be used to keep the price of silver in line with its value in our present silver coin. There will be no profit in holding them out of circulation for the value of their silver content.

Basically, Johnson was saying that silver’s role as a monetary was over now that it had an increasing role as an industrial metal.  You will notice that Johnson warned the “Hoarders” that the U.S. Treasury had the ability to keep the price of silver in line with our present silver coin.

Of course that doesn’t imply “manipulation”… does it?  Naw…just a standard policy of the U.S. Government.

In addition, Johnson stated the following remarks as well:

Some have asked whether our silver coins will disappear. The answer is very definitely-no.

Our present silver coins won’t disappear and they won’t even become rarities. We estimate that there are now 12 billion–I repeat, more than 12 billion silver dimes and quarters and half dollars that are now outstanding. We will make another billion before we halt production. And they will be used side-by-side with our new coins.

Since the life of a silver coin is about 25 years, we expect our traditional silver coins to be with us in large numbers for a long, long time.


Maples Sale(2)

Johnson remarked that the real silver coins would not “disappear”, but indeed they did.  Within just a few years, it was difficult to find hardly any silver coins in circulation.  As we all know the famous Gresham’s Law …. Bad Money Drives Out Good.

As I mentioned in the chart above, the $6 billion of global silver investment is peanuts if we compare it to the $85 billion a month of Fed QE monetization as well as the $90 trillion in Global Conventional Assets under management.

The Real Story Behind Silver will spread as the world realizes the majority of its paper assets held will become increasingly worthless in the future.  Today, the markets are running on fumes coming from the ink off of the Central Banks printing press.

While this all seems quite normal to the majority of people today…. I guarantee it won’t be the day the U.S. Dollar and Treasury Market finally dry up and blow away.